A tax solution that brings relief to our clients!

A tax solution that brings relief to our clients!

Many investors – whether intentionally or unintentionally – do not reclaim foreign withholding taxes. The double taxation that results from this leads to significantly lower returns which could hold up to billions. Starting 1 January 2017, SIX Securities Services will launch its new “Tax Reclaim Service”, a unique but comprehensive solution for banks and investors. With this new solution, SIX Securities Services expects to generate economies of scale across various markets and provide significant operational cost savings for banks.

To make it easier for banks and their clients to process their taxes in the future,
SIX Securities Services will launch a new service in 2017 which will centralize and automate various functions. The first component is the Tax Reclaim Service – an efficient, transparent and cost-effective solution for reclaiming withholding taxes. SIX has been working with the consulting and software development company Confinale to develop this solution. Raiffeisen Switzerland is the first pilot client.

In addition to this new Tax Reclaim Service, SIX Securities Services’ new tax offering includes an expanded database containing important tax information, incorporating automated data enrichment, client- and country-specific tax reports and a complete audit report to increase transparency.

Valerio Roncone, Head Markets & Clients at SIX Securities Services: “In our function as Switzerland’s central financial market infrastructure provider, we make a substantial contribution to the financial success of the Swiss financial center. We take responsibility for laborious and often redundant back-office functions so that banks can focus more on their core businesses. The aim of this new service is to generate sustainable cost savings for our clients and tap into additional potential for optimizing returns.”

Providing a cooperative infrastructure for banks to lower their operating costs is a key strategic objective for SIX Securities Services: “The idea of a joint transaction bank floated by UBS head Sergio Ermotti to reduce cost pressure supports our positioning and strategy. However, this idea involves reopening the long debate surrounding what would represent a momentous and fundamental turning point for the financial market. We have a clearly defined strategy in the post-trade area – new services have either already been launched or are at an advanced stage. Even if the debate about a transaction bank is reopened and framed in more specific terms, we do not expect a final decision for another five to ten years,” explains Valerio Roncone.

Some background information on double taxation

If Swiss investors hold shares in foreign companies, they have to pay withholding tax on interest and dividend payments as they fall due (comparable to Swiss withholding tax – Verrechnungssteuer). The tax is deducted directly at source by the company and transfered to the foreign tax authorities. Investors then pay income tax on the remaining amount and are therefore taxed twice.

There are various double taxation agreements in place with other countries; these allow some of the withholding tax paid to be deducted from the income tax paid in Switzerland. The available options and the amounts vary from country to country.

The amount in excess of the offsettable amount can be reclaimed by investors from the country in which the tax was levied. Investors often need banks to help them sort through the complexities. As banks charge an administration fee for this, it is only worth reclaiming the tax owed if it is above a certain minimum amount. According to statistics issued by the Swiss Federal Tax Administration (Withholding Tax Income), investors fail to reclaim around six billion francs each year (average figure over the past 15 years)!