Distribution of financial products (shares, mortgages, funds, insurance products)

Case 1 - Distribution of insurance products

1.1 Facts of the case

X AG, a broker entered in the register of insurance intermediaries for the branch "transport goods insurance" among others, is commissioned by a large company to review its insurance portfolio and, if necessary, to develop new insurance solutions.

The review results in a new insurance contract with insurer Y in Great Britain, which X GmbH obtains through the general agent G of insurer Y in Switzerland.

X AG, Switzerland, subsequently receives commissions from the general agent G, Switzerland. The large company does not pay for the review of the insurance portfolio.

G for its part receives commissions from insurer Y.

The facts can be graphically represented as follows:

1.2 The question

Question 1: How is the commission which X AG receives from the general agent G to be assessed for VAT purposes?

Question 2: How is the commission which the general agent G receives from insurer Y, UK, to be assessed for VAT purposes?

Case 2 - Distribution of mortgages and securities

2.1 Facts and circumstances - distribution of securities

The registered office of Vermittler AG is in Zurich. Until 31 December 2009, Vermittler AG was entered in the register for persons subject to VAT. On 22 June 2016, the FTA issued an order according to which, as of 1 January 2010, Vermittler AG will not be entered "as a taxable business in the register of VAT payers".

The business model of Vermittler AG consists in seeking potential investors (CH clients) for foreign companies (private equity promoters) who are interested in entering into an agreement to invest in certain securities. So there is an intermediary, an investor and foreign promoters involved.

The intermediary negotiates the respective purchase agreement for the investment with the foreign companies, for which purpose it is based on a model contract. If the intermediary and the respective investor reach a consensus, the investor signs a written purchase agreement regarding the investment with the foreign company.

Vermittler AG had no power of attorney to sign the purchase agreement.

As a result, the foreign company (Private Equity Promoter, UK) owes a commission to Vermittler AG, the amount of which is determined by the volume of the purchase agreement regarding private equity investments. The CH customer makes his payment to a domestic escrow account, whereby the intermediary AG participates in the processing of the payment (to itself (commission) or to the promoter [balance]).

The facts can be graphically represented as follows:

2.2 Questions

Question 1: Does the intermediary AG provide exempted or exempt distribution services to the foreign promoter company?

Question 2: Which activities are to be distinguished from the exempt intermediary activities and lead to a different tax treatment?

Case 3 - Distribution of mortgages

3.1 Facts of the case

Hypo-Connect is a technology-based consulting platform for the independent sale of mortgages. The Fintech company provides its clients with mortgage financing solutions from over 100 partners (banks, insurance companies). The partners are independent third parties.

The distribution of the financing is fully automated. For example, Hypo-Connect carries out a fully automated check of the mortgage requirements, the matching of borrower and lender and the preparation of the corresponding contract documents. The customer advisor involved in Hypo-Connect is the borrower's sole contact person, but is not involved in bringing borrower and lender together due to the automation.

Hypo-Connect does not charge any fees to the borrowers and bears its costs from the distribution fees it receives from the partners.

Here is a graphic representation of the facts:

3.2 The question

How do you assess this situation from a Swiss VAT perspective?

Case 4 - Distribution of structured products

4.1 Facts of the case

Structured Product AG is active in the development and distribution of structured financial products. Structured Product AG has been entered in the Swiss VAT register as a VAT payer since 2013.

Asset managers & banks: Structured Product AG asks its external asset managers, family offices, banks etc. whether they or third-party investors would be interested in subscribing to a structured product.

Alternatively, clients ask Structured Product AG whether a structured product with certain underlying securities can be issued.

Issuer side: Structured Product AG then contacts various domestic and foreign issuers (e.g. UBS, Leonteq, Société Générale, JP Morgan, BCV, etc.) and inquires about the conditions under which the structured product can be issued.

It is important that the issuers are domiciled at home and abroad.

Asset managers, banks, which are responsible for discretionary management or investment advisory mandates, will subsequently receive subscription instructions from Structured Product AG, so that they can subscribe or purchase the structured products for investors directly from the issuer.

Structured Product AG has no authority for the investors to conclude the subscription or purchase with the issuer. Structured Product AG also has no authority of the issuers to conclude a subscription of the structured products with the investors. Furthermore, Structured Product AG does not negotiate the content of the investment contracts with the issuers on behalf of the investors.

Income of Structured Product AG - compensation on subscription

Structured Product AG receives a distribution fee from the issuer for the subscription of the certificates (usually around 0.25% to 1% per annum of the issue amount).

Expenses for Structured Product AG - Payment Compensation to asset managers & banks upon subscription

Structured Product AG passes on part of the global distribution compensation to asset managers & banks against credit.

There are also cases where no distribution fee is passed on because the asset managers & banks already deduct a discount on the amount to be paid to the issuer upon subscription and do not receive any distribution fee.

The activity of Structured Product AG is limited to providing information about the product and the publishers.

Structured Product AG does not provide portfolio management or investment advisory services to its clients or their end customers.

The respective purchase agreement for the structured products is concluded directly between the issuer and the respective investor.

Structured Product AG draws the attention of clients to the fact that each of these agreements is a distribution agreement with the issuer chosen by the client and that their provisions must be complied with.

The facts can be graphically represented as follows:

4.2 Question

Question 1: Are distribution services for domestic issuers taxable services?

Question 2: Are the distribution services for foreign issuers non-taxable services with full deduction of input tax?

Question 3: Does the retrocession paid by Structured Product AG to foreign asset managers constitute compensation for a taxable benefit to Structured Product AG which is subject to subscription tax?

Case 5 - Distribution of collective investment schemes

5.1 Facts:

Mr. Keller concludes an asset management agreement with Vermögensverwaltung AG in connection with his personal investment in collective investments. On the basis of the investment instructions contained in this agreement, Asset Management Ltd. makes the investment decisions regarding investment in collective capital investments and commissions the corresponding securities transactions with domestic Bank 1. Vermögensverwaltung AG has disclosed to Mr Keller that it receives retrocessions from Bank 1. Vermögensverwaltung AG may retain these commissions on the basis of an agreement with Mr. Keller. Vermögensverwaltung AG has concluded a distribution agreement with Bank 1 concerning the distribution of collective investment schemes. Furthermore, Vermögensverwaltung AG has a distributor licence from FINMA.

The following detailed facts are shown graphically as follows:

5.2 Question

How are the retrocessions of Bank 1 to Vermögensverwaltung AG for the distribution of collective investment schemes to be assessed for VAT purposes?