Investment funds: Swiss investor tax reporting trends

A study by KPMG shows that publishing Swiss tax information is a “must have” for a fund to be successful in being marketed to Swiss investors. Read on to find out more about the results of our study. 

KPMG has recently updated a previous study from September 2020 of the tax information published by investment funds on the online database of the Swiss Federal Tax Authorities (SFTA).

The updated study now includes an analysis of the information reported for the 2019 and 2020 tax years (in addition to the years 2013 – 2018, which were covered by our previous study).

Below is a summary of the key findings from our updated study (also available here in graphic format):

1. Growth in the number of funds publishing Swiss tax information seems to have stagnated between 2019 - 2020
   
   Whilst a significant growth was seen in the number of funds publishing Swiss tax information on the SFTA’s online database between 2013 to 2019, there was a stagnation from 2019 to 2020.
   
   This may in part be due to the effects of Covid-19 but is likely also due to the impact of significant consolidation that has taken place in the market in recent years.
   
   Notwithstanding that the number of funds publishing Swiss tax information may have reached its peak, it nevertheless remains clear that publishing Swiss tax information is a “must have” for a fund to be successful when being marketed to Swiss investors. 
   
   As discussed in our previous study (see link above), funds which do not provide annual Swiss tax reporting for their Swiss investors are at a significant competitive disadvantage.
   
   
2. Luxembourg and Ireland continue to dominate in terms of fund domiciles
   
   Most readers will not be surprised to see that Luxembourg continues to be the clear frontrunner in fund domicile location, followed in a distant second place by Ireland.
   
   However, the total number of funds domiciled in Luxembourg that publish Swiss tax information on the SFTA database decreased slightly from 2019 to 2020; this is likely also because of the consolidation seen in the market.
   
   Whilst the number of Swiss funds reported on the SFTA database increased slightly from 2019 to 2020, the overall volume remains low compared to Luxembourg & Ireland. The 35% withholding tax remains a key disadvantage for Swiss funds. 
   
   
3. The trend continues for earlier Swiss tax publications
   
   In line with the results of our previous study, the latest analysis confirms that there is a clear trend towards earlier publication of the Swiss tax information (a trend which seems unlikely to reverse). In 2020 the peak period for publications was 4-5 months after the fund’s accounting year-end (compared to 6-7 months in 2013).
   
   For readers familiar with Swiss tax reporting, this trend is unlikely to come as a surprise. There has been distinct pressure applied to the market by Swiss banks over recent years to have the Swiss tax information published as soon as possible in the calendar year, so that such data can be included directly in reports that the Swiss banks issue to their clients. 
   
   
4. Accumulating classes far outnumber distributing classes
   
   Finally, we were able to expand our latest study to cover the proportion of accumulating and distributing funds reported on the SFTA database . Interestingly, the data shows that the proportion of accumulating classes to distributing classes has remained fairly constant over the 8-year period from 2013 to 2020 (approx. 67% accumulating: 33% distributing).
   
   From a Swiss tax perspective, accumulating funds cause a ‘dry tax charge’ for Swiss investors (in other words, a tax charge on a deemed income for which no cash payment has been received by the investors). Therefore, it could be seen as surprising that the volume of accumulating funds far exceeds distributing funds given this cash-flow disadvantage. However, this is understood when you consider the international investor base (rather than solely a Swiss investor base) of most investment funds.  

We hope you found the summary of our findings above to be informative. If you would like to receive further details about any of the topics covered or Swiss investor tax reporting in general, please do not hesitate to contact us. We would be more than happy to discuss your individual situation.