We had the UBS problem in 2008, then the Credit Suisse problem in 2023. Honestly, I assume that in the next ~30 years we’ll have to bail out UBS again. The current regulators and top managers won’t be greatly affected by it anymore, but in the long run, it will be the young people who will have to bear the consequences if another bank fails. If UBS fails, nobody will dare to wind down the bank next time either. Yes, I’m rather a pessimist.
I looked a bit at how the US could consider countries discriminating, seems like Digital Services Taxes are among their key gripes (as it’s being discussed above). ChatGPT says that very likely “target” countries would be Canada, UK, Germany, Australia, but from reading news etc it’s obvious that eg Norway is worried, holding about 650bn in US equities, as are other countries who could be on the crosshair like France, Italy, Spain.
ChatGPT thinks that Switzerland is quite unlikely to be targeted, so three points and a question:
- capital flight from the US could drop US stocks
- that’d be a buying opportunity for Swiss-based investors if
- dividends outgoing towards Switzerland aren’t progressively taxed an additional 20%, however
- can this be managed effectively, ie dividends outgoing to Germany/Australia being taxed 35% after 5 years from now:
- 20% from January 1, 2026
- 25% from January 1, 2027
- 30% from January 1, 2028
- 35% from January 1, 2029
- but dividends outgoing to Switzerland remaining taxed 15% as per the treaty?
I’d imagine this is not hard to do at the broker level, but don’t know.
I think you are looking at it very tactically
The main issue is not the tax but the rationale for tax . If US can apply whatever tax because they don’t like your country of residence, then this is a problem. Investors don’t like investing in China because of same reason because there is uncertainty of the laws.
It would have been great if US would have said that they are going to apply extra tax to foreigners and will be applied uniformly to everyone. This would be better because atleast its not arbitrary. Now they introduced an element of revenge which is not good for investors.
I don’t think money will flow all of the sudden out of USA. But it would for sure make the market less attractive for an international investor. People invest in US ETFs because it’s easy and the rule of law is applied. But the second part of this statement is changing if the new draft becomes the law.
Regarding CH, yes it might be spared for now. But Switzerland is on watchlist for currency manipulation and unfair practices anyways. So who is to say US treasury wouldn’t classify Switzerland as “not good”
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By the way, when we invest in IE ETFs, then dividends from US companies don’t go to Swiss residents, dividends go to Irish entity.
So unless you have US ETFs, the main country to watch out is Ireland. If they fall on this “bad list”, then ETFs domiciled in IE will suffer
But I don’t know if VWRL & WEBG will suffer the same or not. Because maybe VWRL will fall under “America first and hence saved”
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Strategically too, actually, given the proposed tax hike will take years to come to full effect, in which many things, including the US admin itself, will change. Given the tendency of politicians to spin whatever the previous ones did in a negative way as a method to convince voters I don’t think a Democrat POTUS trying to cancel/amend this if it can be tied to capital flight from the US tanking 401(k)s, for instance. But that’s an optimist view. My wife calls me “optimistic robot” sometimes 
The pessimistic view would be that by then anything related to 899 will have completely and utterly had its effect, and a new US admin may say “Hey…why change it now…?” - certainly wouldn’t change it for foreigners, so it could well stick.
I have both actually, and yes I am aware. Ireland is indeed the big one as EU investors can’t invest in non-UCITS ETFs due to the MiFID, but my dividend ETF is SCHD as of 1.5 month now so it’s US domicile so I have been hypothesizing for a while.
The other things that are automatic in that law are the various efforts from the OECD to get a “minimum” tax which have been implemented in the entire EU, UK and Japan AFAIU, so Irish ETFs would be hit.
OECD should also announce a compensatory withholding tax for any US entity in OECD countries irrespective of what they do.
Trade war part 2 
Another thing that came to my mind:
We can sell tax free, and yes I am aware that this would essentially be tax avoidance if we sell before ex-date every time.
Now what I’m thinking about, I am totally fine with paying tax on the dividends, but I am absolutely not fine with paying unrecoverable withholding taxes and other such bullshit.
Could there be thought of some new regulation with the tax office where I’m purposefully avoiding the tax, but stil pay a virtual tax as if I received the dividend? Not as a punishment (afaik that’s how it can be done if there are systematic tax avoiders), but in accordance with the tax office?
They get the exact same amount of tax, but I am avoiding all the withholding taxes.
Win-win
Granted only makes sense if saved tax > transaction cost/spread, but with that new law, can quickly make sense.
Also no more partial DA-1 etc.
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Its good to be optimistic
US stock market tanking is in no one’s interest. Neither for ones who have 100% of their portfolio in US stocks nor for people who have 20-50% exposure.
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Isn’t this how synthetic ETFs work?
They don’t pay WHT but pay full income tax in Switzerland.
Basically, but that‘s essentially the same process as for accumulating funds.
What I‘m “proposing” is basically being allowed to sell and re-buy around the dividend dates, and then paying normal tax.
Maybe it can be ruled like with accumulating funds though, meaning you “tick a box” or something and then if you held that fund for x amount you pay tax like it paid out the dividends to you.
Anything wrong with accumulating here?
I know what you are proposing but if the purpose is to not pay WHT while paying full income tax, then such instrument already exist
Of course Synthetic ETFs come with their own issues and risks.
However if the goal is to buy/sell US ETFs just before dividend dates, then I doubt that tax office can be party to this because this would label them as tax offenders by US officials
Tax office will simply say- if you don’t want additional WHT just invest somewhere else. It’s not their priority to promote foreign investments.
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No nothing wrong.
I was just describing a way to get around the new BBB proposed taxes from the US.
Yes they exist and they (for now) get aroudn the problem.
However that constrains your portoflio to a very few select funds.
I guesss so, that’s also what I have been thinking about
The thing is if the measure comes in, you’ll have people selling and that will tank the price of your investments too. Now, if you are OK to hold long term and you think it will recover after a decade, then it is no issue and you can take the opportunity to buy.
Yes, if enacted, it would make UBS less competitive vs. its peers and less profitable. So UBS is determined to fight the increase of capital requirements they are targeted for. And they will have some good arguments, some may embarrass Swiss politicians.
For background, the demise of Credit Suisse would have come to a decision point many years earlier hadn’t FINMA started to grant what was (in)transparently named ‚regulatory filters‘ about 10 years back. This translated to an approval for the bank to operate with much less capital than the official rules mandate, while keeping that fact secret. Oddly enough, nobody was able to determine later who in politics really was accountable for that approval.
Arguably, even higher capital requirements will do more harm than good if trust in the regulator to even enforce the existing ones is damaged.
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Sure, bureaucrats taking such a major clandestine decision around a global systemically important financial institution without political backing.
For the sake of it I asked ChatGPT how credible that storyline of ‚plausible deniability‘ was and it hysterically laughed back at me.
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Things that are happening as we speak
- President using federal forces without request of governor thereby breaking internal protocol
- Government telling companies what to do and what not to do
- Individual tariffs can be requested if CEO can strike a deal with administration
- Lawyers cannot operate independently or else their business will be attacked using government power
- Debt keeps on rising, budget deficit keeps on rising at the same rate of arrogance
- Judges are being threatened if their decision is not aligned with government position
- Other countries are being threatened with random tariffs, taxes if they don’t behave (basically being told that they cannot decide what happens in their countries, but they will be told)
- Other countries are threatened when they either form a bloc or buy military equipment from other major powers
- Neighbours are being threatened to be annexed
- Rich people are told that they will face consequences if they support opposition
Should this mean an increase in equity risk premium or decrease? For China it meant increase (even though half of the things didn’t happen) but for US maybe we should say “this too shall pass”
I am starting to question this assumption that US market can never face fate of Japan , Greece or China. It feels like we are trying to justify our choices rather than think rationally because we are heavily invested in USA.
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I’ll relate what a US colleague who used to work for UNH once told me when we were discussing investments: “US companies are in reality extremely competent accounting companies, with a veneer of whatever they’re saying they’re doing”. This quote stuck with me, the US admin may be behaving like that of a Banana Republic but that doesn’t mean it won’t change in the relatively near future, or make their firms any less competent at what they do in the present.
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It’s true. But that’s true for earnings but don’t you think US commands high multiples because of market factors and other elements that are getting into grey zone now?