Switzerland: The impact of currency fluctuations on the CbCR threshold
On November 23 2016, the Federal Council adopted the Federal Act on the International Automatic Exchange of Country-by-Country Reports of Multinationals (the Act) that aims to implement the country-by-country reporting (CbCR) standard in Switzerland as recommended by the OECD as part of the BEPS project. The Council of States passed the Act on March 16 2017 and the National Council will discuss the draft legislation in June 2017. If the Parliament (i.e. the Council of States and the National Council) approve the proposal and a referendum is not held, the Act should enter into force at the end of 2017.
The CbC report will be required in Switzerland for fiscal years commencing on or after January 1 2018, but voluntary filing will be possible for prior years provided the Act is adopted and Switzerland has a system in place that makes it possible to file the CbC report before the end of 2017.
Multinational enterprises (MNEs) with total annual consolidated group revenues of less than CHF 900 million ($893 million) will not have to file a CbC report in Switzerland. This is in line with the OECD's guidance, which provides that the agreed threshold is €750 million or a near amount in domestic currency as of January 2015. MNE groups that comply with this local threshold requirement denominated in a local currency should not be subject to file a CbC report in any other jurisdiction that is using a threshold denominated in a different currency.
While many countries have followed the implementation guidance from the OECD and applied the January 2015 currency exchange rate to determine the equivalent threshold in domestic currency, several jurisdictions, such as Australia, convert the local threshold on the basis of an average exchange rate for the year for which the CbC report has to be filed.
This could give rise to inconsistent global CbC filing requirements for Swiss headquartered MNEs because the Swiss CbCR threshold was set on the basis of the exchange rate as of January 1 2015 and considering that the Swiss franc soared in mid-January 2015, following the decision by the Swiss National Bank to drop the cap on the franc's value against the euro, and has remained at high levels since then. For instance, a MNE group headquartered in Switzerland with a consolidated turnover of CHF 850 million will be exempt from filing according to the Swiss legislation. However, if the group has an affiliate located in Australia, it will nevertheless be required to file a CbC report as its global turnover is above the Australian threshold of A$1 billion ($737 million) converted in CHF (about CHF 762 million according to the average AUD/CHF exchange rate for 2016).
In light of the above, we recommend Swiss headquartered taxpayers to give due consideration to monetary thresholds and applicable currency exchange rates in the countries where they operate in order to assess the requirement to file a CbC report.
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