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Marcus Küpfer

Stefan Oesterhelt

Taxation of investments in securities in Switzerland - including structured products, collective investments and segregation of private and professional asset management

Workshop on the occasion of the ISIS) seminar on 10-11 September 2018 entitled "Taxation of investments in securities in Switzerland

09/2018
The corresponding case solutions can be purchased for CHF
120.00
(introductory price)
be on sale in the shop
The case solutions and other documents can be obtained free of charge in the shop.

Case 1: Income tax; separation of private asset management and professional securities trading

Basic facts

Mrs. Müller is an employee of the winning bank in Zurich. She works in customer service. In her free time, Mrs. Müller regularly conducts stock market transactions, for which she uses the assets of CHF 500,000 inherited from her mother, who died in 2014. Each year, Mrs. Müller carries out around 200 transactions, holding the acquired securities (shares, collective investments and options) for between 10 and 30 days. Mrs. Müller uses a transaction volume of approximately four times the original invested capital.

For Mrs. Müller, the financial success of these securities transactions will take time to materialize: Initially, it will suffer losses of CHF 20,000 and CHF 25,000 in 2015 and 2016 respectively. Only in 2017 will it achieve a profit of CHF 10,000. From 2015 to 2017, the single Mrs. Müller will generate additional income from gainful employment of CHF 125,000 (year 2015), CHF 130,000 (year 2016) and CHF 120,000 (year 2017).

Question:

Does Ms. Müller qualify as a part-time professional securities dealer?

Variant 1

In contrast to the basic situation, Mrs. Müller does not carry out securities transactions independently, but relies solely on the investment strategy of the winning bank within the framework of an asset management contract. Nevertheless, Mrs. Müller is constantly being pursued by bad luck; in the years 2015-2017, she will suffer losses exclusively from the securities transactions made, which amount to CHF 35,000 (year 2015) and CHF 40,000 (years 2016 and 2017).

Question:

Does Ms. Müller qualify as a part-time professional securities dealer?

variant 2

In contrast to the basic facts, Ms. Müller does not trust in possible profits on the stock exchange. Instead, she transfers the inheritance of CHF 500,000 received through her mother's death to her savings account at Bank B. In 2017, Bank B will be forced to charge a negative interest rate of 0.2% on the balance of Mrs. Müller's savings account of CHF 1.5 million.

Question:

Can Mrs. Müller claim the negative interest of CHF 3,000 as part of her 2017 tax return?

Case 2: Income tax and withholding tax; concept of collective investment scheme

Basic facts

Bank A has its registered office in Canton B and is subject to supervision by the Swiss Financial Market Supervisory Authority (FINMA). As part of its business activities, Bank A offers its clients tailor-made and individual asset management solutions.

Heinz Müller and Peter Meier are both resident in Zurich and have unlimited tax liability in Switzerland. Mr. Müller and Mr. Meier are both customers of Bank A, but do not know each other. Mr. Müller and Mr. Meier have similar investment needs, which is why Bank A sets up a collective investment scheme in the form of a contractual investment fund approved by FINMA (hereinafter referred to as the A investment fund) for the two gentlemen. All share certificates of the A investment fund are owned by Mr. Müller and Mr. Meier, there are no other investors. The fund management company of the A investment fund appointed by Bank A acquires various shares and bonds from both Swiss and foreign companies or issuers on the stock exchange as part of its business activities for this fund.

Questions:

  • Is the A investment fund for tax purposes a collective investment scheme?
  • Do Mr Müller and Mr Meier have any tax-legal consequences in the areas of income tax and reimbursement of withholding tax as a result of the acquisition and during the holding period of the shares in the A-investment fund?

Variant 1:

Bank A sets up the A investment fund exclusively for Mr. Müller.

Questions:

  • Is the A investment fund for tax purposes a collective investment scheme?
  • Does the acquisition and holding period of the A-investment fund share certificates result in tax consequences for Mr. Müller in terms of income tax and reimbursement of withholding tax?

Variant 2:

Contrary to the facts of the case, Bank A has its registered office in Germany. Bank A sets up the D investment fund approved by the German supervisory authority exclusively for Mr. Schmidt (resident in Berlin and domiciled in Germany). Subsequently, the fund management of the D- Investment Fund acquires participation rights in the Swiss D AG and the Austrian E GmbH via the Swiss intermediary Vorteil Finanz AG on the Zurich stock exchange.

Questions:

Does the acquisition and holding period of the A-investment fund share certificates result in tax consequences for Mr. Müller in terms of income tax and reimbursement of withholding tax?

Case 3: Write Down Note

Facts

The Swiss-based subsidiary (SPV) of Zurich-based Bank X. issues on the capital market a bond with debt waiver in the sense of Art. 11 et seq. BankG (so-called write-down note). The capital raised with this bond issue can be counted by Bank X. towards the capital required by banking regulations (Basel III Tier 2 capital).

The terms and conditions of the bond essentially provide that investors lose their entitlement to repayment of the principal and to future interest payments if the equity ratio falls below a certain threshold ("trigger event") or if FINMA decides that Bank X. would be insolvent without the waiver of claims ("viability event").

If such a waiver of claims has occurred, the investors irrevocably waive their claims. A revival of the claim (or other claims of the investors against the issuer) are excluded.

Questions:

  • How are interest payments on the bond to be treated for income tax purposes?
  • How are interest payments of the bond to be treated for withholding tax purposes?

Case 4: Bail-in bond

Facts

The Swiss-based subsidiary (SPV) of the Zurich-based systemically important Bank X. issues a bond on the capital market, which can be written off in full or in part or converted into equity capital by FINMA as part of a restructuring procedure of Bank X. based on Art. 31 para. 3 Banking Act. This is intended to help meet the requirements of the Financial Supervisory Board (FSB) regarding the total loss absorbing capacity (TLAC) of systemically important banks.

Questions:

  • How are interest payments on the bond to be treated for income tax purposes?
  • How are interest payments of the bond to be treated for withholding tax purposes?

Case 5: Convertible bond

Facts

The Swiss-based listed company Y. AG will issue a convertible bond on 6 September 2018 with the following conditions:

  • Duration: 6 years (6 September 2018 - 6 September 2024)
  • Coupon: 0.15%.
  • Volume: CHF 100 million
  • Conversion premium: 26%.
  • Issue price: 100
  • Repayment: 100
  • Conversion period: 15 October 2018 up to and including 6 October 2024 in Y-shares (partially serviced with treasury shares)

Y AG has an S&P rating of A.

The 6Y CHF swap rate is 0.35% at the time of issue.

The spread for a 7Y plain vanilla bond issued by Y-AG at the time of issue is 0.8%.

Questions:

  • How is the interest to be treated for income tax purposes?
  • How is a conversion after 3 years to be treated for income tax purposes?
  • How is repayment of the note at maturity to be treated for income tax purposes?
  • How is the sale of a note after 3 years (i.e. on 6 September 2021) to be treated for income tax purposes?
  • How should repayment or conversion be treated for withholding tax purposes?

Which changes would result in the following variants:

  • Option 1: The coupon is 0.2%.
  • Option 2: The coupon is 0.4%.
  • Variant 3: The score is issued at 98.5%
  • Variant 4: A few weeks after the issue, the bond is topped up (tapping), which is issued at 98.5%.
  • Option 5: The bond is serviced with newly created shares from a conditional capital increase.

Case 6: Barrier reverse convertible

Initial situation

Questions:

  • How should the product be treated for income tax purposes for an individual resident in Switzerland?
  • How is the product to be treated for withholding tax purposes?
  • How is the product to be treated for stamp duty?

Variant 1: Strike 50%

What differences in tax treatment would result if the strike (barrier) were 50% instead of 80%?

Option 2: Conditional coupon

What differences in tax treatment would result if the coupon were only paid out if no knock-in event had occurred at the time of coupon payment?

Option 3: Conditional coupon, term 18 months

What differences in tax treatment would result if the coupon were only paid out if no knock-in event occurred at the time of coupon payment and the maturity is now 18 months and the BRC note is sold after 6 months?

Variant 4: Fixed coupon at the end of the term, term 12 months

What differences in tax treatment would arise if the (fixed) coupon was only paid at the end of the term and the BRC note was sold after 6 months?

Variant 5: Floating Rate Coupon

What differences in tax treatment would arise if the quarterly coupon were dependent on LIBOR and variable?

Version 6: Autocallable Barrier Reverse Convertible

What differences in tax treatment would arise if the product could be recalled by the issuer early if the SMI exceeds 110%?

CHF
120.00

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