AEoI: collective investment schemes AEoI: collective investment schemes

On 1 January 2017, the Automatic Exchange of Information (AEoI) entered into force in Switzerland, together with the Swiss AEoI Act, the AEoI Ordinance and the AEoI Guidance of the Swiss Federal Tax Administration. As a result, certain collective investment schemes will have to collect specific financial information regarding their foreign investors for the AEoI reporting.

For the first time, Switzerland will exchange data regarding the year 2017 in September 2018 with the EU member states, Australia, Canada, Guernsey, Iceland, Isle of Man, Japan, Jersey, Norway and South Korea. Moreover, Switzerland has already agreed with about 40 additional countries on a first exchange of information in the year 2019 with respect to data collected regarding the year 2018.

Financial institutions
Under the AEoI, generally all financial institutions are required to report their account holders. According to the CRS (section VIII.A.3), the term “Financial Institution” means a custodial institution, a depository institution, an investment entity, or a specified insurance company defined as follows:

• A custodial institution (section VIII.A.4 CRS) means any entity that holds, as a substantial portion of its business, financial assets for the account of others.
• Depository institution (section VIII.A.5 CRS) means any entity that accepts deposits in the ordinary course of a banking or similar business.
• Specified insurance company (section VIII.A.8 CRS) means any insurance company that issues, or is obligated to make payments with respect to, a cash value insurance contract or an annuity contract.
• Investment entity (section VIII.A.6 CRS) means any entity:

1. that primarily conducts as a business one or more of the following activities or operations for or on behalf of a customer: (a) trading in money market instruments (cheques, bills, certificates of deposit, derivatives, etc.); foreign exchange; exchange, interest rate and index instruments; transferable securities; or commodity futures trading; (b) individual and collective portfolio management; or (c) otherwise investing, administering, or managing financial assets or money on behalf of other persons; or
2. the gross income of which is primarily attributable to investing, reinvesting, or trading in financial assets, if the entity is managed by another entity that is a Depository Institution, a Custodial Institution, a Specified Insurance Company, or an Investment Entity described in subparagraph A.6.a.

Asset managers
Most asset managers (including asset managers of collective investment schemes) qualify according to section VIII.A.6.a CRS as investment entity and therefore as financial institution according to the AEoI. However, the vast majority of the asset managers are nevertheless not required to report their clients under the AEoI, as they qualify as so-called “non-reporting financial institution”. According to article 3 AEoI Ordinance, an asset manager qualifies as non-reporting financial institution if the client’s assets are located at a financial institution in the name of the client and if the asset manager solely acts based on a power of attorney by the client.

Once the asset manager provides additional services, such as the holding of accounts / deposits in its own name on behalf of clients, the asset manager qualifies as reporting financial institution, even if he only pursues this as a secondary activity to the power of attorney based asset management. As a reporting financial institution, the asset manager needs to comply fully with all AEoI obligations.

Fund management companies, in particular, are considered as Non-Reporting Financial Institution, provided that (section 2.4.2.5.3 AEoI Guidance):

• its activities are limited exclusively to the management of its own contractual investment fund; and / or
• in the case of individual management of portfolios / investment advice, provided that the activity is based on a power of attorney issued by the holder of a financial account or similar document (e.g. an investment contract).

However, the management of share accounts establishes a depository institution, while the safekeeping and technical administration of collective investments leads to a Custodial Institution. In these cases only, the fund management company is considered to be a reporting Financial Institution.

Collective investment schemes only qualify as non-reporting financial institution if all investments are or will be held by natural persons or legal entities that are not reportable persons, with the exception of a passive non-financial entity (NFE) with reportable controlling persons.

Even if a collective investment scheme does not qualify as non-reporting financial institution, it is possible that it has no AEoI reporting obligations, as for example all units are held by or through banks (non-reportable person).

Based on the above, all persons involved in collective investment schemes must carefully assess whether they have to fulfil any AEoI obligations. If an entity qualifies as reporting financial institution, it is important to ensure that not only the reporting but also the due diligence procedures to identify all reportable persons is carried out.