On 21 June 2019, Parliament passed the new Federal Act on the Implementation of Recommendations of the Global Forum on Transparency and Exchange of Information for Tax Purposes. The referendum period runs until 10 October 2019. The new law is expected to enter into force at the end of this year or the beginning of 2020.
Switzerland implemented the recommendations of the Groupe d'action financière (GAFI) as early as 2015. With the new law, the transparency regulations are being tightened even further (cf. our blog posts of January 2018 in German and 2015).
The aim of this package of measures is to ensure that Switzerland receives a positive evaluation in the next country review and thus avoid harmful countermeasures by other countries.
What are the concrete changes?
Abolition of bearer shares
Until now, the concept of the bearer share has been supported – but now it is being abolished after all.
The new law provides that bearer shares are only permitted if the company has listed equity securities on a stock exchange or if the bearer shares are structured as intermediated securities and deposited with or entered in the main register of a custodian in Switzerland designated by the company.
If a company falls under one of these exceptions, it must request entry of this fact in the Commercial Register at the Commercial Register Office within 18 months of the new regulations coming into force.
If neither of the two exceptions applies to a company, it must convert its bearer shares into registered shares within 18 months of the entry into force of the new law. If it does not comply with this obligation, the bearer shares it issued will automatically be converted into registered shares. Following such a conversion, the next time the company is amending its Articles of Association it is obliged to adjust them accordingly. The Commercial Register Office will reject any application to register another amendment to the Articles of Association in the Commercial Register as long as this adjustment has not been made.
After the conversion, the company will enter in the share register those shareholders who have fulfilled the reporting obligation of the beneficial owner in respect of their shares under previous law. Shareholders who have not complied with their reporting obligation may apply to the court to be entered in the share register within five years of the new provisions coming into force. However, such an application requires the prior consent of the company. If no application is filed within this period, the shares concerned shall be null and void by operation of law and replaced by treasury shares. The respective shareholders lose the rights associated with the shares. A shareholder whose shares have become null and void through no fault of their own may, under certain conditions, assert a claim for compensation against the company within ten years.
Violation may result in fines
As part of the implementation of the GAFI recommendations in 2015, Parliament considered the suspension and forfeiture of shareholders' membership rights as a sufficient sanction. Now, however, the Federal Assembly has complied with the request of the Federal Council to introduce penal provisions.
Violation of the duty under company law to report beneficial owners at shareholder level, as well as violation of the duties under company law to keep share registers and directories at company level, will now also be punishable by a fine. The company is also at risk of being prosecuted for organizational deficiencies and, in the worst case, of being dissolved by the court.
Further relevant changes
Practice has shown that the transparency rules applicable to companies in the Swiss Code of Obligations (CO), insofar as they concern the beneficial owner, are not sufficiently defined. The legislator has now specified who is to be regarded as the beneficial owner and what must be reported if the shareholder is a company or a listed company.
The simultaneous introduction of the legal definition of the beneficial owner in companies is essential, particularly due to the new penal provisions. If the shareholder is a company, any natural person who controls the shareholder in terms of Art. 963 para. 2 CO must be reported as a beneficial owner. Accordingly, the same criteria concept applies to the assessment of who controls the shareholder as applies to the determination of whether a company is required to prepare consolidated annual accounts. So you have to report who:
directly or indirectly holds the majority of the voting rights in the shareholder subject to reporting requirements;
directly or indirectly has the right to appoint or remove the majority of the members of the shareholder's supreme management or administrative body; or
can exercise a controlling influence over the shareholder by virtue of the Articles of Association, the deed of foundation, a contract or comparable instruments.
If there is no such person, the shareholder must notify the company accordingly. The company can thus ascertain that the shareholder has fulfilled his reporting obligation.
If the shareholder is a listed company, if he is controlled by such a company within the meaning of Art. 963 para. 2 CO, or if he controls such a company within the meaning of Art. 963 para. 2 CO, he only has to report this fact and the name and registered office of the company.
In addition, the legislator has now set a deadline for the reporting, as required by applicable law, regarding changes in the first name, surname or address of the beneficial owner. Such reports must be submitted to the company within three months.
No obligation to open a Swiss bank account
The draft consultation procedure originally provided for an obligation for certain companies to hold an account with a Swiss bank, but this was dropped early in the process. This is to be welcomed. Although it can be assumed that the majority of companies already have an account with a Swiss bank, one of the questions would have been which banks would have to accept companies as customers and at what cost (see the already published blog post of March 2019 on the question of whether there is a legal right to a bank account in Switzerland).
What needs to be done?
Companies that still have bearer shares outstanding and do not fall under either of the two exclusions should convert now and avoid time pressure.
Due to the imminent sanctions, both shareholders and the company should ensure that they properly comply with their duty to report or keep records. Companies are advised to adapt their internal processes to the new regulations at an early stage.