{{item.videoDuration}}
{{item.title}}
{{item.text}}
{{item.videoDuration}}
{{item.title}}
{{item.text}}
On 12 January 2022, the Swiss Federal Council submitted a draft law (preliminary draft) for consultation to introduce the trust into the Swiss civil law and tax law. The main goal, supported by professional service providers of the Swiss financial market, is to develop the market of trust-related services in Switzerland by offering a Swiss-based solution both for private and commercial clients.
In brief
Introducing the instrument of a Swiss trust into Swiss law is an exciting prospect. Until now, although Swiss law does recognise foreign trusts, it has not offered a genuine and proper trust as a legal instrument governed by Swiss law. Having a proper Swiss trust will allow for many applications, in particular in wealth structuring, that will enrich and improve the position of Switzerland in the private wealth market.
The proposed amendments to the Swiss Federal Direct Tax law (“SFTL”) would, however, trigger adverse tax consequences which currently do not exist and which could have a negative impact on the attractiveness of trusts for estate planning (Swiss or foreign) and more generally of Switzerland as a relocation destination, especially whenever a Swiss resident is involved in the trust setup.
Tax perspective
The draft law proposes the introduction of a new article in the SFTL regarding the taxation of trusts, with no distinction between trusts formed under Swiss or foreign law. The proposed wording replicates the approach under the Circular no. 30 of the Conférence Suisse des Impôts (“the Circular”) with respect to revocable and irrevocable fixed interest trusts (qualifying as such according to the criteria listed in the Circular), but it introduces a new approach with respect to trusts qualifying as irrevocable and discretionary, notably by assimilating it to Swiss foundations for tax purposes.
This new proposed approach with regard to irrevocable discretionary trusts would lead to an increased tax exposure in Switzerland relative to the currently applicable tax treatment where the trust is set up by a non-Swiss tax resident settlor. Under the current practice and applicable guidelines (as per the Circular), no taxation would arise in such a case providing that no distributions are made to Swiss residents.
Moreover, it is our understanding that the proposed new article should not make discussions with the cantonal tax authorities redundant to the extent that the qualification of a trust from a Swiss tax perspective would still have to be assessed based on the Circular guidelines. It would, however, limit the scope of negotiation usually based on the economic reality while also generating new questions and uncertainties, as the proposed wording provides room for interpretation at many levels as well as practical difficulties with respect to its application.
As the proposed law is still in draft form, there remains a high level of uncertainty on the amendments it could undergo before being passed into law. It will nevertheless be key to keep a close eye on how it evolves and to be ready to adapt existing setups when the time comes.
Legal perspective
The new trust according to the preliminary draft of the law replicates the typical and well-known principles of a trust as is common in the English-speaking world. There will be a settlor, a trustee holding full ownership together with beneficiaries. Additional bodies such as a protector may be appointed.
The Swiss trust may have any purpose, although there are limitations regarding charitable trusts, as according to the view of the Swiss Federal Council these should mainly be pursued by Swiss foundations or associations.
The duration of a Swiss trust will be limited to 100 years. With that, in particular in the area of estate planning or wealth structuring, a genuine Swiss trust will add a flexible and practical solution compared to the estate planning instruments currently offered by Swiss law.
Moreover, once a Swiss trust is introduced into Swiss law, a robust alternative to non-Swiss trusts will be available that can benefit from the Swiss reputation of solid, diligent and professional trust service providers based in Switzerland.
Conclusion
Overall, the prospect of the introduction of a trust into Swiss law is an exciting development in the Swiss wealth management landscape and, if implemented correctly, should provide further opportunities for families looking for the right structure for their wealth.
The tax treatment will, however, be key to the success or failure of the Swiss trust – prescribing a tax treatment in legislation that is not aligned with the tax treatment under the Circular would, in our view, pose a significant risk to the popularity and viability of the Swiss trust.
Based on the responses provided to the consultation, other stakeholders and interested parties share this view, including various cantonal tax authorities.
We eagerly await the official reaction and the outcome of discussions in parliament.
In our blog series, we provide up-to-date information on the requirements for trust companies in Switzerland.
Our team is helping trustees and their stakeholders understand and master the challenges of an increasingly complex and international environment
#social#
{{filterContent.facetedTitle}}
{{contentList.loadingText}}
{{contentList.loadingText}}
