Owen, Christopher: Global Survey – December 2019

22 November 2019, the Crown Dependencies of Guernsey, the Isle of Man and Jersey jointly issued a new guidance in respect of economic substance legislation, which applies to companies that are tax resident in those jurisdictions and generating gross income from relevant activities in a financial period commencing on or after 1 January 2019.

It expands previous guidance from April 2019 to cover insurance, intellectual property and shipping, and updates advice previously given in other areas including pure equity holding companies, the directed and managed test, fund management and distribution and services activity.

The guidance clarifies that regulated funds are out of scope although there is an intention that corporate self-managed funds will be brought into scope for their fund management activities, subject to future changes to legislation.

There is also further clarification on the requirements to hold board meetings in the relevant jurisdiction. It is not necessary for all of the company's meetings to be held in the jurisdiction, but most will have to be held there with a quorum of directors physically present.

Certain meetings may be held elsewhere, and isolated decisions can be taken elsewhere, provided this does not outweigh decisions taken in the jurisdiction. However, fund management companies unlikely to meet the substance requirements if strategic decisions have been delegated to entities outside the jurisdiction without real oversight by the board.

The full guidance can be accessed at https://www.gov.gg/CHttpHandler.ashx?id=122152&p=0

27 November 2019, Executive Vice-President of the European Commission Margrethe Vestager confirmed in an interview that the Commission would not be appealing against Starbucks’ successful challenge

In September, Starbucks won its appeal against the Commission's 2015 decision that the Netherlands had granted unlawful state aid in a case concerning an advance pricing agreement and the transfer pricing methodology used in relation to a Dutch-resident subsidiary. It had required the coffee giant to pay the Dutch authorities €25.7 million in allegedly unpaid taxes.

The General Court held that the Commission had failed to prove that the selected transfer pricing method for the determination of the correct transfer price was incorrect. The Court held that it was not sufficient for EU officials to fault the way the Dutch tax authority calculated the taxable profits. It needed to show that the right method would have resulted in Starbucks paying more taxes.

"After carefully assessing the General Court judgment of 24 September 2019 concerning the tax treatment of Starbucks in the Netherlands, the Commission has decided not to appeal the Court’s ruling to the European Court of Justice," the commission said in a statement.

8 November 2019, the European Council agreed to remove Belize from the EU's ‘blacklist’ of non-cooperative tax jurisdictions. It said Belize has passed the necessary reforms to improve its tax regime for international business companies that was due to be implemented by end 2018.

As a result, Belize will be moved from annex I of the conclusions to annex II – the so-called ‘grey list’ – pending the implementation of the country's commitment to amend or abolish the harmful features of its foreign source income exemption regime by end 2019.

The Council also found the Republic of North Macedonia to be compliant with all its commitments on tax co-operation following its ratification of the OECD multilateral convention on mutual administrative assistance. It was therefore removed from the grey list.

The list was established in December 2017, revised in March 2019 and is contained in annex I of the conclusions adopted by the Council. The conclusions also contain a second annex that includes jurisdictions that have undertaken sufficient commitments to reform their tax policies and whose reforms are being monitored by the Council's code of conduct group on business taxation.

Eight jurisdictions remain on the black list of non-cooperative jurisdictions: American Samoa, Fiji, Guam, Oman, Samoa, Trinidad & Tobago, the US Virgin Islands and Vanuatu. The Council will continue to review and update the list regularly in 2019, whilst it has requested a more stable process as from 2020 with only two updates per year.

4 November 2019, businessman Robert Gaines-Cooper began a fresh appeal before the First Tier Tribunal over a disputed £30 million tax assessment in respect of unpaid taxes for a 10-year period from tax year 1992-93 to 2003-04.

In October 20111, the UK Supreme Court upholding an earlier Court of Appeals’ decision and dismissed Gaines-Cooper’s appeal against previous rulings that found him resident in the UK and thus liable to UK tax.

At issue was whether Gaines-Cooper, who moved to the Seychelles in 1976, was in fact still a UK resident. Although he was careful not to stay 91 days in the UK in any given year, the Court of Appeals ruled in 2010 that his close connections with the UK showed that he was, in fact, still resident, and thus liable for years of back taxes.

The entrepreneur has returned to court with allegations that the UK revenue lost or deliberately destroyed key documents.

26 November 2019, the Global Forum on Transparency and Exchange of Information for Tax Purposes brought together more than 500 delegates from 131 member jurisdictions in Paris to discuss the tax transparency agenda at its Tenth Anniversary meeting.

In a statement, the Global Forum said the international community has achieved unprecedented success in using new transparency standards to fight offshore tax evasion. According to data in its 10th anniversary report, in 2018 nearly 100 member jurisdictions had automatically exchanged information on 47 million financial accounts, covering total assets of USD4.9 trillion. In total, more than €100 billion in additional tax revenue has been identified since 2009.

A recent OECD study also showed that wider exchange of information driven by the Global Forum was associated with a global reduction in foreign-owned bank deposits in international financial centres (IFC) by 24% (USD 410 billion) between 2008 and 2019. The start of automatic exchange of information in 2017 and 2018, it said, was associated with an average reduction in IFC bank deposits owned by non-IFC residents of 22%.

“The Global Forum has been a game-changer,” said OECD Secretary-General Angel Gurría. “Thanks to international co‑operation, tax authorities now have access to a huge trove of information that was previously beyond reach. Tax authorities are talking to each other and taxpayers are starting to understand that there’s nowhere left to hide. The benefits to the tax system’s fairness are enormous.”

The Global Forum said almost all its members had eliminated bank secrecy for tax purposes, with nearly 70 jurisdictions changing their laws since 2009. Almost all members now either forbid bearer shares or ensure that the owners can be identified. Since 2017, members also ensured transparency of the beneficial owners of legal entities. With support from the Global Forum, 85 developing country members had used exchange of information to strengthen their tax collection capacity.

“There is still a lot of work ahead of us,” said Zayda Manatta, head of the Global Forum Secretariat. “Members must continue efforts to ensure full implementation of existing standards and address the tax transparency challenges of an increasingly integrated and digitalised global economy.”

A further five countries – Benin, Bosnia & Herzegovina, Cabo Verde, Mongolia and Oman – signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters at the meeting, bringing the total number of participants to 135. The Convention provides for all forms of administrative assistance in tax matters: exchange of information on request, spontaneous exchange, automatic exchange, tax examinations abroad, simultaneous tax examinations and assistance in tax collection.

Kenya and Oman also signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS), bringing the total number of signatories to 92. It now covers over 1,630 bilateral tax treaties. Oman further signed the Common Reporting Standard Multilateral Competent Authority Agreement, while Tunisia signed the Country-by-Country Reporting Multilateral Competent Authority Agreement.

12 November 2019, the Global Forum on Transparency and Exchange of Information for Tax Purposes published eight peer review reports assessing compliance with the international standard on transparency and exchange of information on request (EOIR).

These reports form part of the second round of Global Forum reviews, which assesses jurisdictions against the updated standard – beneficial ownership information of all relevant legal entities and arrangements, in line with the definition used by the Financial Action Task Force.

Six jurisdictions – Andorra, Curaçao, Dominican Republic, Marshall Islands, Samoa and the United Arab Emirates – had demonstrated progress on the deficiencies identified in the first round of reviews in implementation of the standard. They received an overall rating of ‘Largely Compliant’.

They had all improved access to information, developed broader agreement networks for the exchange of information (EOI) on request and improved monitoring of the handling of incoming EOI requests, which are now increasing in all jurisdictions. Saudi Arabia also maintained its overall rating of Largely Compliant.

Panama was rated ‘Partially Compliant’, having addressed some OECD recommendations since its last assessment in 2016. These included strengthening its strike-off of inactive entities and requiring all entities to maintain accounting records. In January 2018, it signed the OECD's multilateral competent authority agreement, committing it to the Common Reporting Standard for automatic exchange of financial account information, and fulfilling an undertaking it made to the OECD in 2016.

However, the Forum said it still had some further challenges to address. In particular, it needed to ensure the availability of accounting information to the authorities and to strengthen its supervisory programmes to ensure this type of information is kept in practice. It also needed to ensure it could fully respond to EOI requests in a timely manner. During the review period from 1 April 2015 to 31 March 2018, Panama provided only partial information to 46% of the 302 requests it received.

These new reports also issue new recommendations, in particular towards improving the measures related to the availability of beneficial ownership of relevant entities and arrangements. This criterion was added to the Forum's tax transparency standard when it was strengthened in 2016.

25 November 2019, the Hong Kong Special Administrative Region and the Macao Special Administrative Region signed a comprehensive double tax treaty. The treaty applies in Hong Kong to profits, salaries and property taxes, and in Macao to complementary, professional and property taxes. It will come into force upon ratification by both sides.

Under the treaty, a Hong Kong tax resident’s profits are taxable in Macao only if it carries on business in Macao through a permanent establishment (PE). Only the profits attributable to the PE can be taxed in Macao. The treaty adopts the PE definition recommended under Action 7 of the OECD’s Base Erosion and Profit Shifting (BEPS) project.

The treaty generally provides for a 5% withholding tax rate on dividends and interest, and a 3% rate on royalties. Hong Kong and Macao currently do not impose withholding tax on dividends or interest. Macao also does not impose withholding tax on royalties but Hong Kong has a range of withholding tax rates.

An eligible teacher or researcher who is employed in Hong Kong and engages in teaching and research activities at a recognised educational or scientific research institution in Macao is exempt from tax in Macao for three years, provided the relevant income is subject to tax in Hong Kong. Similarly, a teacher or researcher employed in Macau and working in Hong Kong is exempt from tax in Hong Kong for three years, provided the relevant income is subject to tax in Macao.

This is only the third double tax treaty signed by Hong Kong to include such an article, following similar arrangements in treaties with Mainland China and Saudi Arabia.

For Hong Kong residents, tax paid in Macao will generally be allowed as a credit against the Hong Kong tax payable on the same income up to a maximum of the Hong Kong tax payable on the taxable income computed according to Hong Kong tax law.

For Macao residents, double taxation will be eliminated either by exemption from tax in Macao for income taxed in Hong Kong, or by allowing the Hong Kong tax paid on dividend, interest or royalty income as a credit against the Macao tax payable, up to a maximum of the Macao tax payable on the taxable income computed according to Macao tax law.

The treaty incorporates the relevant provisions of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI).

22 November 2019, the Hong Kong Court of Final Appeal reversed the decision of the Court of Appeal that a trustee was in negligent breach of trust for failing to supervise the business of a trust’s underlying company. In doing so, it upheld the supremacy of ‘anti-Bartlett’ provisions contained in the trust deed.

In Zhang Hong Li and Ors v DBS Bank (Hong Kong) Limited and Ors [2019] HKCFA 45, the first appellant, IQ EQ (NTC) Trustees Asia (Jersey) Ltd. (formerly known as DBS Trustee HK (Jersey) Ltd.) was the trustee and held the only share of the second respondent, a company named ‘Wise Lords’, as the sole trust asset. The second appellant, DHJ Management Ltd., was the sole director of Wise Lords. Ji Zhengrong, a settlor and a beneficiary of the trust, was the investment adviser of Wise Lords and directed its investments.

In July and August 2008, during the unfolding global financial crisis, DBS Trustee and DHJ Management gave after-the-event approvals for three transactions entered into by Wise Lords, comprising: an increase in Wise Lords’ credit facilities to USD100 million; purchases of USD83 million worth of AUD; and purchases of three decumulators. As a result of AUD falling sharply against USD, Wise Lords suffered significant losses.

The lower courts in Hong Kong found DBS Trustee liable for grossly negligent breach of trust as trustee and DHJ Management liable for grossly negligent breach of fiduciary duty as director in approving the transactions. As the appellants’ breaches were held to have directly caused loss of the trust assets, they were therefore ordered to pay equitable compensation to the respondents.

The issues on appeal related to the bases on which the courts below found liability against the appellants and ordered them to pay equitable compensation.

The basis on which the courts below found the appellants liable for gross negligence was that they owed a “high level supervisory duty” to the respondents. Jersey trust law applied to the trust subject to the terms of the trust deed. The trust deed contained what are commonly known as ‘anti-Bartlett’ provisions, which relieved the trustee from any duty to interfere with or supervise the business of the trust’s underlying company (Wise Lords), unless the trustee has actual knowledge of dishonesty in the conduct of the business.

The issue was whether, despite the anti-Bartlett provisions, the appellants owed the “high level supervisory duty” as found by the trial judge and Court of Appeal, and whether they had breached such duty.

The Hong Kong Court of Final Appeal held that there was no such duty and no such breach. The existence of such a duty was inconsistent with the anti-Bartlett provisions. Such a duty would require DBS Trustee to query and disapprove of the transactions, which would be interfering with Wise Lords’ business contrary to the terms of the trust deed. There was no actual knowledge of dishonesty that required DBS Trustee to interfere.

In any event, the appellants’ approvals of the transactions did not constitute gross negligence. While the transactions were speculative and risky, the trust teed specifically allowed the taking of such risks. As such, the appellants would still be protected by liability exemption clauses for any acts and omissions short of gross negligence.

Even if the appellants were liable, the present case was not one where the trustee misapplied or lost the trust assets and was obliged to restore them to the trust. Rather, the present case would be categorised as involving a lack of appropriate skill or care causing a decrease in value of trust assets, for which any equitable compensation payable to the respondents would be reparative in nature. In such a case, the courts would apply common law principles of foreseeability and remoteness to examine whether and to what extent the trustee’s breach had caused the loss in the trust assets.

After the hearing but before judgment was delivered, the parties notified the Court that they had agreed to settle their dispute. However the Court exercised its discretion to deliver its judgment because there were important issues of law involved and its decision differed from those of the lower courts. Accordingly, if the case had not been settled, the Court would have unanimously allowed the appeal.

The full judgment can be accessed at https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=125573

8 November 2019, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) published draft proposals for a global minimum business-tax rate aimed at preventing multinationals, especially in the digital economy, moving their profits into low-tax jurisdictions.

The G20 countries mandated the Inclusive Framework to deliver a solution to the digitalisation of the economy by the end of 2020. In May 2019, the Inclusive Framework agreed a programme of work to address the tax challenges of the digitalisation of the economy, which consisted of a two-pillar approach, aiming to provide new nexus and profit allocation rules under Pillar One and a global anti-base erosion (GloBE) mechanism under Pillar Two.

The programme of work sets out the key design issues that need to be addressed in the context of the GloBE proposal, including the determination of the tax base, the extent to which the rules will permit blending and questions as to the need for (and design of) carve-outs and thresholds. The consultation document explores each of these three technical design aspects.

Under Pillar Two, members of the Inclusive Framework agreed to explore issues and design options in connection with the development of a co-ordinated set of rules. Recognising that it would be difficult to ring-fence the digital economy from the rest of the economy for tax purposes, the scope of the GloBE proposal is not limited to highly digitalised businesses. It proposes a systematic solution designed to ensure that all internationally operating businesses pay a minimum level of tax.

The consultation document focuses on specific technical issues in respect of the GloBE proposal, as follows:

-An ‘income inclusion’ rule that would tax the income of a foreign branch or a controlled entity if that income was subject to tax at an effective rate that is below a minimum rate;

-An ‘undertaxed payments’ rule that would operate by way of a denial of a deduction or imposition of source-based taxation (including withholding tax) for a payment to a related party if that payment was not subject to tax at or above a minimum rate;

-A ‘switch-over’ rule to be introduced into tax treaties that would permit a residence jurisdiction to switch from an exemption to a credit method where the profits attributable to a permanent establishment (PE) or derived from immovable property (which is not part of a PE) are subject to an effective rate below the minimum rate; and

-A ‘subject to tax’ rule that would complement the undertaxed payment rule by subjecting a payment to withholding or other taxes at source and adjusting eligibility for treaty benefits on certain items of income where the payment is not subject to tax at a minimum rate.

These rules would be implemented by way of changes to domestic law and tax treaties and would incorporate a co-ordination or ordering rule to avoid the risk of double taxation that might arise if more than one jurisdiction seeks to apply the rules to the same structure or arrangement.

The programme of work for Pillar Two specifies that the GloBE proposal will operate as a top-up to an agreed fixed rate. The determination of the actual rate of tax to be applied under the GloBE proposal will be discussed once other key design elements of the GloBE proposal are fully developed.

The consultation document can be accessed at https://www.oecd.org/tax/beps/public-consultation-document-global-anti-base-erosion-proposal-pillar-two.pdf.pdf

28 November 2019, the OECD published the seventh round of stage 1 peer review reports in respect of Action 14 of the Base Erosion & Profit Shifting (BEPS) project, which seeks to improve the resolution of tax-related disputes between jurisdictions.

Under Action 14, countries are required to implement a minimum standard to strengthen the effectiveness and efficiency of the mutual agreement procedure (MAP). The MAP is included in Article 25 of the OECD Model Tax Convention and commits countries to endeavour to resolve disputes related to the interpretation and application of tax treaties.

Inclusive Framework jurisdictions have committed to have their compliance with the minimum standard reviewed and monitored by their peers. Each report assesses a country's efforts to implement the Action 14 minimum standard.

The seventh round of the stage 1 peer review featured reports on Brazil, Bulgaria, the People's Republic of China, Hong Kong, Indonesia, the Russian Federation and Saudi Arabia, and contained around 190 targeted recommendations that will be followed up in stage 2 of the peer review process.

Overall, the reports conclude that five of the seven assessed jurisdictions meet the majority or most of the elements of the Action 14 minimum standard. Russia meets half of the elements of the minimum standard, and Saudi Arabia meets less than half of the elements. The main areas requiring improvement concerned the prevention of disputes and the implementation of MAP agreements.

Regarding the prevention of disputes, China and Hong Kong met the minimum standard. Indonesia and Russia had bilateral Advance Pricing Agreement (APA) programmes in place that did not allow for rollbacks and did not meet the standard. Brazil, Bulgaria and Saudi Arabia had no bilateral APA programmes in place and provided no specific elements to assess.

Regarding the availability and access to MAP, Brazil, China, Hong Kong and Russia had introduced guidance on the availability of MAP and how they applied this procedure in practice. Hong Kong and Indonesia had a documented bilateral consultation and notification process in place for situations where the competent authority considered the objection raised by taxpayers in a MAP request as not justified. Bulgaria also had in place a notification process, but it was not yet documented.

Regarding the resolution of MAP cases, Hong Kong, Indonesia, Russia and Saudi Arabia had closed MAP cases on average within a 24-month minimum standard timeframe during the period 2016-18. All assessed jurisdictions other than Brazil met all the other requirements.

Regarding the implementation of MAP agreements, Bulgaria and China had systems in place to monitor implementation. Brazil, Indonesia and Saudi Arabia did not entirely meet this element due to their domestic statute of limitations. There is a risk that MAP agreements cannot be implemented where the applicable tax treaty does not contain the equivalent of Article 25(2), second sentence, of the OECD Model Tax Convention.

Russia and Hong Kong had a domestic statute of limitations but as no MAP agreement had yet been reached that required implementation during the period of review, it had not been possible to assess whether they met the standard.

All assessed jurisdictions, apart from Brazil, had signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI), through which a number of their tax treaties will potentially be modified to fulfil the Action 14 requirements.

Where treaties cannot be modified upon entry into force of the MLI, the assessed jurisdictions reported that in general they intended to update some or all of their tax treaties via bilateral negotiations. Brazil reported that it intended to update all of its tax treaties via bilateral negotiations and had already contacted all the relevant treaty partners to enter into bilateral negotiations.

Many countries are currently working to address deficiencies identified in their respective stage 1 peer review reports. The OECD will continue to publish Stage 1 peer review reports in batches in accordance with the Action 14 peer review assessment schedule. In total, 52 stage 1 peer reviews and 6 stage 1 and stage 2 peer reviews have been finalised, with the second batch of stage 2 soon to be released.

5 November 2019, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) released additional interpretative guidance to give greater certainty to tax administrations and multi-national enterprise (MNE) groups on the implementation and operation of Country-by-Country (CbC) Reporting (BEPS Action 13).

The new guidance includes questions and answers on, amongst other topics, the treatment of dividends received, the operation of local filing, the use of rounded amounts in Table 1 of an MNE Group’s CbC report and the information that must be provided with respect to the sources of data used.

The document contains the complete set of guidance concerning the interpretation and operation of BEPS Action 13 issued to date. This will continue to be updated with any further guidance that may be agreed.

The guidance can be accessed at https://www.oecd.org/ctp/guidance-on-the-implementation-of-country-by-country-reporting-beps-action-13.pdf

11 November 2019, the Family Division of the High Court rejected an application for financial relief by the former wife of Russia’s richest man, Vladmir Potanin, stating that the English courts should not be used for “divorce tourism”.

In Potanin v Potanina [2019] EWHC 2956 (Fam), Natalia Potanina had applied under Part III of the Matrimonial & Family Proceedings Act 1984 for financial relief following an overseas divorce under Russian law in 2014.

Both former spouses were Russian nationals. They married in Russia in 1983 and lived only in Russia throughout their marriage. Potanina took up residence in London under an investor visa in June 2014. She claimed she had received around US$40 million following the Russian proceedings, while Potanin claimed the sum was US$84 million.

Potanina claimed her former husband’s real net worth was US$20 billion and sought a further US$6 billion in the English proceedings. She claimed the Russian award did “not even begin to meet her “reasonable needs” and suggested that the Russian judiciary has been influenced by her former husband.

Cohen J in the EWHC accepted that the sum she had received was a “paltry award” by English standards given Potanin’s wealth and the length of their 31-year-marriage, but he rejected her application for leave to bring a claim.

“It seems clear to me that in every instance the Russian courts have consistently and properly applied Russian law,” he said. Potanina was a spouse whose background and married life was firmly fixed in her home country with no connection to England either by presence or by assets or business activities.

Simply because she had suffered what she regarded as a significant injustice in her home country and had come to England after the breakdown of the marriage did not in itself make the case appropriate for determination in England and Wales. “If this claim is allowed to proceed then there is effectively no limit to divorce tourism,” Cohen J said.

The judgment can be accessed at http://www.bailii.org/ew/cases/EWHC/Fam/2019/2956.html

20 November 2019, the Swiss Federal Council adopted the dispatch on amending the Federal Act on the International Automatic Exchange of Information in Tax Matters (AEOIA). The aim of the proposal is to implement the recommendations of the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum).

The Global Forum reviewed the Swiss AEOI Act and Ordinance and issued recommendations. At the end of February 2019, the Federal Council submitted for consultation a proposal that takes those recommendations into consideration. The consultation procedure lasted until mid-June 2019.

Among other things, the Federal Council proposed removing the exception for condominium owners associations. Furthermore, it intends to adapt the applicable due diligence obligations, show amounts in US dollars and introduce a document retention obligation for reporting Swiss financial institutions.

At ordinance level, the consultation participants expressly rejected the proposed removal of the exceptions for associations and foundations, as well as for their accounts. Since the handling of non-profit institutions under the AEOI is to be discussed again at international level, the Federal Council said it considered it premature to implement the Global Forum's recommendations.

Switzerland has been implementing the AEOI standard since 1 January 2017 to prevent being placed on the OECD's blacklist of non-cooperative jurisdictions. The Swiss parliament will examine the proposal for the first time in the 2020 spring session. It is not expected to come into force until the start of 2021 at the earliest.

6 November 2019, the Swiss Federal Council adopted protocols of amendment to its double taxation agreements (DTAs) with New Zealand, the Netherlands, Norway and Sweden.

The protocols implement the minimum standards for DTAs under the OECD/G20 base erosion and profit shifting (BEPS) plan, and include an anti-abuse clause designed to prevent tax treaty shopping.

The protocol with New Zealand is further supplemented by an arbitration clause, which ensures greater legal certainty for taxpayers. The protocol with the Netherlands additionally clarifies the concept of a pension scheme and creates a non-exclusive right for the source state to tax pensions.

The protocols will come into force only when they have been ratified by the parliaments of the respective countries.

6 November 2019, the Swiss Federal Council adopted the final versions of the Financial Services Ordinance (FinSO) and Financial Institutions Ordinance (FinIO), which introduce a regulatory system for the trust sector in Switzerland. Together with the Financial Services Act (FinSA) and Financial Institutions Act (FinIA), adopted on 15 June 2018, the ordinances will come into force on 1 January 2020.

The two Acts and the supporting Ordinances, introduce a new regulatory regime for trustees operating in Switzerland. The aim is to raise standards and governance, improve client protection and create a competitive market for financial intermediaries.

The legislation introduces minimum standards and requirements in respect of governance, education and professional skills and standards. It also requires that control systems and risk management processes be put in place, with provisions for the management of conflicts of interests.

A two-year transition period is provided for trustees to comply and enable the Swiss Financial Market Supervisory Authority (FINMA) to establish a supervisory structure for activities carried out by licensed trustees and portfolio managers.

Both Swiss trustees and foreign trustees with a presence in Switzerland will have to apply for authorisation during this transition period. However the final legislation specifically exempts private trust companies and certain single family trust structures from licensing requirements.

The FinSA contains provisions offering securities and other financial instruments, as well as on providing financial services. It also makes it easier for clients to assert their legal claims. The FinIA will introduce coordinated supervision for the various categories of financial institutions – portfolio managers, managers of collective assets, fund management companies and securities firms.