A study by KPMG shows that the number of funds which publish tax information for their Swiss investors has increased by over 40% in the last 6 years. What could be driving this recent trend? Read on to find out more about the results of our study.
Investment funds (both Swiss and foreign) are strongly encouraged to calculate and publish certain Swiss tax information on an annual basis so that Swiss retail investors can complete their tax returns properly.
Swiss funds understand this domestic tax reporting requirement very well and all Swiss funds make this tax information available as standard practice. However, funds established outside of Switzerland (“non-CH funds”) are not always aware of this Swiss tax reporting requirement, potentially giving rise to adverse tax consequences for Swiss retail investors if such information is not made available.
The Swiss Federal Tax Administration (SFTA) maintains an online database, publishing this tax information for both Swiss and non-CH funds (so-called “Kursliste” / “Liste des Cours” or “Course Listings”).
KPMG has recently performed a detailed study of the data published on the SFTA’s database over a 6-year period (2013 to 20181). Below is a summary of the key findings from our study, which we believe are particularly interesting for the asset management industry:
1) Significant growth in the number of non-CH funds publishing Swiss tax information
The number of non-CH funds authorized for public distribution in Switzerland by the Swiss regulator (FINMA) grew from approx. 7,500 in 2013 to over 9,800 in 2018 (+29%).
However, over that same period the total number of non-CH funds publishing tax information on the SFTA’s database grew by over 43% (from approx. 9,000 in 2013 to almost 13,000 in 2018).
In our opinion, this increasing trend for non-CH funds to publish Swiss tax information is caused by the following factors:
- Greater awareness of investors, asset managers & financial intermediaries (e.g. banks) of the importance of tax suitability (in particular, greater awareness that non-CH funds which do not publish such tax data are not suitable for Swiss retail investors for tax reasons and thus are actively avoided)
- More likely that the SFTA challenges non-CH funds that have not published Swiss tax information, as this is a legal requirement for non-CH funds that are authorized for public distribution in Switzerland by FINMA
- The (successful) strong-arming of asset managers into publishing such Swiss tax data by certain banks in order to comply with their internal policies (mainly to ensure that the tax reports prepared by the banks for their clients are as complete as possible)
- International drive towards greater tax transparency (including the Automatic Exchange of Tax Information), resulting in likelier disclosure of foreign investments by Swiss investors
2) Luxembourg and Ireland continue to dominate in terms of fund domiciles
Over the last 6 years, Luxembourg has strengthened its position as the fund domicile location of choice for asset managers distributing into Switzerland (in 2018, over 47% of all funds reported on the SFTA’s database were domiciled in Luxembourg, followed by Ireland with over 15%; Swiss funds were 3rd, representing only 10% of the total fund population).
Other interesting points to note are:
- The number of Swiss funds reported on the SFTA database has remained virtually flat over the 6-year period. This is proof that Switzerland’s new fund legislation has not had a significant impact on the number of new Swiss fund launches. Switzerland remains a less attractive fund location compared to its competitors despite its efforts to improve the regulatory framework. The 35% Swiss withholding tax on both accumulations and distributions remains a key disadvantage for Swiss funds. In practice, this essentially renders Swiss funds only suitable for Swiss investors, where the fund assets are also predominately located in Switzerland.
- The number of offshore funds (e.g. those domiciled in the BVI, Cayman Islands or in Guernsey) have declined in terms of total number of fund publications in the SFTA database (approx. 500 funds in 2013 vs approx. 380 in 2018)
3) Growing trend towards earlier Swiss tax publications
Our study shows a clear trend towards earlier publication of the Swiss tax information; in 2013 the peak period for publications was 6-7 months after the fund’s accounting year-end, whereas in 2018 the peak period shifted to 2-3 months after the fund’s year-end.
This is likely due to the pressure certain Swiss banks applied to the market to have the Swiss tax data published by mid-February after the tax year (so that the tax data could be included in the tax reports which the banks typically issue to clients at the end of February).
This also reflects a growing trend towards calculating the Swiss tax information based on accounting data, rather than waiting until the fund’s financial statements have been audited to commence work on the calculations.