New regulatory rules – new bank flat rate?

The banking industry is currently confronted by a host of regulatory rules: Revision of the Swiss Code of Obligations (CO), Finanzdienstleistungsgesetz (FIDLEG – Financial Services Law), FINMA-Mitteilung 59 (FATCA), FINMA-RS 08/2 Accounting for banks, partial revision of the Law on Collective Investments (KAG) and the Ordinance on Collective Investments (KKV). Some of the new regulatory rules also impact VAT, even if this not apparent at first sight.

For example, based on the change in the KAG at 1 March 2013, the wording of Art. 21 Para. 2 Item 19 lit. f VAT Law was also revised. At the beginning of February 2014 the FTA published the draft of the VAT Industry Info 14 Financial Organisations on the topic of Collective Investments. However, based on this draft it can be expected that the present practice of the FTA in the area of Collective Investments will not be changed.

With the revision of the accounting rules in the Code of Obligations (in force since 1.1.2013) the accounting rules for banks and securities dealers (cf. previous Circular 2008/2 „Rechnungslegung Banken“) together with the Bank Ordinance were also revised. From a formal aspect the classification rules for the annual accounts and the consolidated accounts are no longer to be found in the Bank Ordinance, but in future in a FINMA Circular. SwissBanking has already in the consultation procedure commented critically that the banks‘ legal certainty is reduced, if the minimum classification requirements are no longer laid down in an ordinance. From a substantive aspect the draft of the FINMA Circular 2015/xy „Rechnungslegung Banken“ (the previous Circular 2008/2 is to be completely replaced) foresees that the net amount of the valuation adjustments and losses at risk of default resulting from the interest business will in future be reported under interest income (previously in a separate income statement caption).

Without a change in the present calculation methodology for the flat rate input tax deduction for banks, this alteration would have the consequence that in future the valuation adjustments and losses at risk of default will have an impact on the banks’ flat rate deduction. One must wait and see, whether the FTA will take the draft of FINMA Circular 2015/xy „Rechnungslegung Banken“ as an opportunity to consider carefully and revise the present flat rate mechanism. Although with the introduction of the VAT Law, since 1.1.2010 dividends no longer result in an input tax reduc-tion, if the bank flat rate deduction is used in reporting they (still) involve negative consequences. Already in 2005 SwissBanking was invited by the FTA to comment on the methodology for calculating the flat rate deduction. It recommended retaining the status quo until conclusion of the project for a total reform of the VAT. Whether today SwissBanking would make the same recommendation, also must be waited for until it has concluded the FTA’s assignment.

The future of the application and methodology of the bank flat rate deduction is still uncertain, but it demonstrates once again that changes in the law other than the VAT Law also impact VAT.

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