The extension of the TOB to cover transactions executed abroad went relatively unnoticed when it was adopted in late 2016. The move was unusual, but symptomatic of the many challenges that have arisen for the Swiss finance industry in the last few years. It represents a new opportunity for the industry to think more deeply about the adjustments it needs to make in order to continue providing a competitive service to foreign clients.
Until 31 December 2016, only transactions executed in Belgium by Belgian residents were subject to the TOB. Since 1 January 2017, orders executed through a non-Belgian intermediary have also been subject to the TOB. As before, the TOB applies to purchases and sales of securities (equities, bonds, fund units etc.), both Belgian and foreign, in a secondary market. The rates applicable (0.09% / 0.27% / 1.32%) vary according to the type of transaction and the nature of the financial instrument being traded.
For transactions executed in Belgium, TOB-related disclosure, collection and remittance obligations are handled by Belgian banks. For foreign transactions, however, those obligations fall on the entity placing the order, which has to submit the required form and pay the tax within two months of the transaction. Aside from the substantial administrative burden that this creates for that entity, there is a risk that mistakes may arise in terms of classifying the instruments traded.
The extension of the TOB's scope to cover foreign transactions has forced Swiss banks to rethink their strategies. Should they keep their Belgian client bases? If so, how much assistance should they give to their Belgian clients in meeting these new requirements? There were three possibilities. The largest Swiss banks have decided to match the Belgian banks by taking on all disclosure, collection and remittance obligations relating to the TOB. Some small banks are simply referring their clients to a tax specialist. However, most banks have opted to provide their clients with partial administrative assistance. They inform their Belgian clients of the amount of TOB they need to pay based on their transactions.
Applying the provisions of a foreign law, as well as mitigating and dealing with the legal and operational consequences of from any mistakes, omissions or delays, represents a challenge. Regardless of the approach taken, Swiss banks have had to spend money to adapt their systems and procedures to the specific requirements of the TOB.
However, this Belgian example has also confirmed that, by taking a proactive approach and engaging in constructive discussions, Swiss banks can turn what first looks like a threat into an opportunity. Firstly, there are several targeted investment strategies that overcome the TOB issue by focusing on financial instruments that are not subject to the tax. There are also wealth management solutions, fully compliant with legal and regulatory requirements, that fall outside of the TOB's scope while offering effective, long-term tax and succession planning possibilities that meet the needs of each client.
Swiss banks cannot continue to look at the build-up of tax-related and regulatory constraints in the last few years solely in terms of the additional costs they are generating. In today's new environment, banks that can develop high-value-added products and services for foreign clients will maintain their competitive edge. To achieve that, as well as financial expertise, they need to factor in each client's technical legal and tax position, jurisdiction and family situation. As a result, banks must set up teams of dedicated wealth planners with the right skill sets. That expertise is an essential ingredient of the value-added service that a Swiss private bank needs to provide to its international clients.
Co-Head Tax and Wealth Planning