SWITZERLAND: E-COMMERCE

Switzerland Introduction

As an estimated 50% of Switzerland's population currently uses the internet, and the government feels that having more services online would enable them to inform citizens of legislative and other changes more easily, increase direct political involvement, and provide direct access to federal offices, such as the department of taxation or the federal and regional authorities.

According to a government strategy paper on the issue, the aim of the e-government initiative is to 'create more transparency and...boost people's confidence in the governmental procedures.'

The move has been welcomed by Swiss expatriates worldwide, as one of the most important functions of the new e-government initiative will be to allow Swiss citizens to vote online. The Organisation for Swiss Expatriates has applauded the move, saying that it will be 'of greatest benefit' to Swiss expats everywhere.

The country's major telecommunications company is Swiss Telecom (Swisscom), provider of the main Internet hosting functions in the country plus a raft of other Internet services.

In October, 2004, the Swiss House of Representatives took a step towards the liberalisation of the country's telecoms market by ending Swisscom's monopoly of what is known as the "local loop".

Consumers in Switzerland can choose their telecoms provider, but they had to pay a monthly fee to Swisscom for the use of the telephone cables connecting their house to the nearest sub-station.

The plan obliged Swisscom to allow its competitors to physically access its cable network and to allow rival firms to provide broadband connections using its fast bitstream access network, albeit just for a two year period.

Needless to say, Swisscom criticised the planned unbundling of the local loop, arguing that it will be left to bear an unnecessarily large portion of the telecoms sector's investment burden if other firms are allowed to benefit at its expense.

In December, 2004, however, the Swiss Federal Court threw a spanner in the works with regard to the government's plans for liberalising the telecoms sector.

The Federal Court's ruling, which stated that existing telecommunications law could not be used to force Swisscom to allow competitors to access the local loop, also flew in the face of a decision by the Swiss Federal Communications Commission to force the provider to open the 'last mile' to competition.

Since the amendment of the Swiss Telecommunications Act of April 1, 2007, other service providers can use Swisscom’s “last mile.” Swisscom is offering new, legally prescribed access services on the basis of this regulation. By March 2008, the company had invested around CHF60 million in unbundling; 43 contracts had been signed with 22 alternative providers. Cablecom and VTX had made the biggest progress in implementing unbundling.

However, the privatisation of Swisscom was effectively put on hold following the rejection, in May and June 2006 respectively, by both houses of parliament of amendments to the Telecommunications Enterprise Act, which would have enabled the government to sell its remaining majority stake.

The Swiss Parliament must now consider amending the country's existing telecoms laws, if the government intends to continue its push towards full liberalisation of the sector.

In order to bring Swiss telecommunications legislation in line with new European Union legislation, a revision to the Telecommunications Act entered into force in 2007.

In October 2001 Swisscom launched a new generation of public payphones that can be used not only to make regular telephone calls but can also send e-mails, text messages and surf the Internet. The web payphone services include:

Naturally enough, Switzerland's banks are making substantial use of the Internet. Credit Suisse has launched an online business portal which brings together the expertise and advice of over 40 partners providing comprehensive banking and insurance products amid a wide range of services, information and tools in the areas of finance and insurance.

Credit Suisse Private Banking won an award entitled 'Best Use of IT in the Banking Sector' at the Euopean Banking Technology Awards 2001. A jury of industry experts selected Credit Suisse Private Banking from over 50 applicants from a selection of criteria covering a broad range of quantitative and qualitative measurements including professionalism of project management, system compatibility and architecture, level of data security, innovation, functionality, client benefit and efficiency.

In November, 2005, businesses and governmental agencies in Switzerland expressed concern that they will be left out in the cold when registration for the new .eu domain begins in 2006.

For the most part, only EU-resident businesses, organisations and individuals will be permitted to register for the new suffix, meaning that countries such as Switzerland, which are in Europe but are not members of the European Union, will likely be left out of the process altogether.

This means that important and recognisable Swiss names may be registered by foreigners on the .eu domain, a prospect which is causing widespread concern.

Beat Fehr, who heads one of the two Swiss firms permitted to sell domain names with the .eu designation, observed that:

"It would really be a pity if names that epitomise Switzerland, such as 'matterhorn.eu' or 'switzerland.eu' end up belonging to [people in other countries]."

On October 10, 2008, Federal Councillor Doris Leuthard and then US Trade Representative Susan Schwab signed a joint declaration on e-commerce in Washington, D.C. The declaration envisages cooperation between Switzerland and the USA with a view to improving trade conditions for e-commerce. The declaration envisages cooperation between Switzerland and the USA with a view to improving trade conditions for e-commerce.

In the joint declaration, Switzerland and the USA state their intention to facilitate and encourage electronic commerce, prevent discriminatory measures, guarantee users a higher degree of legal certainty and establish the necessary climate of trust and confidence for electronic transactions. The two parties declare their desire to work together in this regard within the World Trade Organisation and other relevant international organisations, as well as to continue their cooperation at the bilateral level.

E-commerce is an everyday feature of commercial activity. Businesses increasingly use it as a more efficient means of conducting purchase and sales transactions, and private individuals are tending to order more goods and services online. The availability of digital products and services delivered electronically is constantly growing both nationally and internationally. In this context Switzerland and the USA aim to work together to strengthen the multilateral trading system.

The joint declaration on e-commerce was developed under the Swiss-US Cooperation Forum on Trade and Investment.

See below for specific information on e-commerce in Switzerland, or go to Offshore-e-com.com for an extensive analysis of the commercial possibilities and the legal background.

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Switzerland: E-Commerce in a Low-Tax Area

The natural bonding of the Internet and Offshore stems from the fact that both, of their nature, manage to avoid tax. Businesses which can operate on the Internet without, so to speak, touching ground in a high-tax jurisdiction will naturally migrate to offshore or low-tax jurisdictions; while businesses that already have offshore existence will find it highly convenient to be able to use the Internet to trade with their high-tax customers without having to make a landing in their countries.

By locating websites in low-tax jurisdictions to carry out functions previously based in high-tax jurisdictions such as sales and marketing, treasury management, supply of financial services, and most of all, the supply of digital goods such as music, video, training, software etc, businesses can take advantage of low rates of taxation for increasingly substantial parts of their operation.

In many countries, the distribution of goods from a warehousing facility does not constitute the carrying on of a trade or business in that jurisdiction, so that even for physical goods, in many case it will be possible to avoid a permanent establishment (taxable presence) altogether in many high-tax jurisdictions where trading activities currently take place.

When it comes to considering the future of Switzerland as an e-commerce centre, however, the position is not as simple as it is for out-and-out offshore jurisdictions, because the 'offshore' or 'low-tax' sector of the Swiss economy, based on the various special forms of the Stock Corporation, sits within a normal, moderately-taxed economy (see Offshore Legal and Taxation Regimes). In fact the legislation governing most of the special forms of company specifically prohibits normal commercial and business activity inside Switzerland, or allows it only to a certain degree, in which case it is taxed normally. Therefore local e-commerce activity would have to be carried on in subsidiaries, and their profits would be subject to withholding tax on distribution to the tax-exempt parent holding company.

The situation is somewhat better for the subsidiary of a group which is providing services internally, since it can use the Service Company form; and an e-commerce company providing commercial services exclusively abroad would probably be able to function as a Domiciliary Company as long as it avoided any permanent establishment in Switzerland - it is not clear whether this would allow the presence of servers. In the seven cantons which permit Auxiliary and Mixed Companies, there are some further possibilities.

Specific advice should be sought from Swiss specialist lawyers and accountants before setting up e-commerce operations in Switzerland.

Subject to these uncertainties, Switzerland certainly has the opportunity to become a centre of e-commerce activity, being a major 'low-tax' jurisdiction with tens of thousands of enterprises already installed, including many collective investment funds, banks and other financial institutions. The country's geographical location, its good telecommunications links and its sophisticated business infrastructure add to its suitability as an entrepot. It remains to be seen whether the government and the cantons will adjust their fiscal policies to favour e-commerce development (not necessarily that easy for an OECD country during the current crusade against harmful tax competition), or whether rapid e-commerce growth will be constrained by legal and fiscal complexities.

The country may not have helped its e-commerce prospects with a law enacted in April, 2003, requiring Swiss ISPs to keep e-mail records for six months to aid criminal investigations. The authorities will be given access to the data only as part of ongoing criminal investigations. The ISPs have been told to log information such as connection times, e-mails sent and received and the recipients of these e-mails. However, they will need further authorisation to access the actual content of an e-mail.

Not surprisingly, this has greatly increased the compliance burden for Swiss ISPs, which have had to install sophisticated new equipment, often at great expense. Though the ISPs had a year to come into compliance with the changes, some complained the transition period allowed to implement the technology was not long enough. To put the task into context, one ISP, Infomaniak, says it would have to monitor 300,000 emails a day if asked to log the activity of just one customer.

Critics argue the new law is full of loopholes that enables criminals to easily bypass the legislation. For instance, company and university servers are not included in the scheme, nor are e-mails sent from internet cafes. Criminals using 'hotmail' accounts on international servers also escape unseen.

However, Switzerland's formidable banking sector has in fact made good progress towards offering Internet services to its customers. Credit Suisse, for instance, has launched an online business portal which brings together the expertise and advice of over 40 partners providing comprehensive banking and insurance products amid a wide range of services, information and tools in the areas of finance and insurance.

Credit Suisse states that the portal enables the business sector to 'find out about different financing options rapidly, to determine one's company's risks in a matter of minutes or to produce a business plan .. thanks to its new business portal, Credit Suisse can meet the needs of its corporate clients, and keep pace with continuing dynamic developments in e-business.'

For information about the impact of e-commerce on a number of the main activities that take place offshore, click on a link below to go to our specialist E-commerce site Offshore-e-com.com.

Sales and Distribution of Physical Products
Sales and Distribution of Digital Products
Banking and Financial Services (including Investment Funds)
Corporate Support Functions

To see an analysis of the current state of legal and tax issues surrounding offshore e-commerce, click here.

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Switzerland Case Studies

This section will contain case studies of e-commerce solutions applied to business activities carried out from Switzerland. To be kept updated as to our progress click here.

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