Tax optimisation for ETF investing

[San_Francisco]

@pandas

they do already treat ETF and mutual funds on a look through basis when taxing reinvested dividends. So possible analogously they might have to consider the treaties also on a look through basis when refunding withholding taxes

…which, applying that logic to the case of a geographically diversified fund like MSCI world, would mean the need to look at double taxation treaties with 20 or so countries individually. And of course have a country breakdown with proper reporting indicating how much tax was withheld by which country for what kinds of distributions.

@Sunnyberny

If it gets rejected I will surely not go to court

I am wondering if it’s just a case of “giving it a shot”.
Surely there must be (in the eyes if tax authorities) a line between merely erring on a tax return you’re required to hand in - and tax avoidance by claiming deductions or refunds that are ineligible - and trying to support that claim with „random“ documents.

[Sunnyberny]

@San_Francisco

Surely there must be (in the eyes if tax authorities) a line between merely erring on a tax return you’re required to hand in - and tax avoidance by claiming deductions or refunds that are ineligible - and trying to support that claim with „random“ documents.

Don’t worry I’ll attach the document of L1TW paid and ask them whether this can be reclaimed and if not, why. I will not change the numbers from the “Wertschriftenverzeichnis” itself (not sure whether I even could as they get downloaded from the internet).

Btw, I would need to do exactly the same if I was to reclaim L2TW as the tax program in Basel does not recognize funds as DA-1 eligible (some tax authorities even claim that they are in fact not eligible, see a user post from above).

So without specifically asking I would not be able to reclaim neither L1TW nor L2TW.

[Sunnyberny]

@San_Francisco

…which, applying that logic to the case of a geographically diversified fund like MSCI world, would mean the need to look at double taxation treaties with 20 or so countries individually. And of course have a country breakdown with proper reporting indicating how much tax was withheld by which country for what kinds of distributions.

Should not be an issue for the fund manager. I believe this is done in Germany and reported as “anrechenbare Quellensteuer“ on a yearly basis. At least prior to the new InvStG (2018) one could deduct this from the tax liability in Germany. It is reported as a single number though (no country breakdown) that should already factor in the tax treaties that Germany has with the various countries.

[San_Francisco]

@Sunnyberny

I believe this is done in Germany and reported as “anrechenbare Quellensteuer“ on a yearly basis

Yes - but isn’t the German figure from the German broker somewhat meaningless when it comes to Swiss taxes? From a perspective of look-through taxation, you shouldn’t use the German figures, should you? In principle, if withholding tax is deductible in Germany, the very same might not hold true for Switzerland and vice versa.

[flenker]

@Sunnyberny

Don’t worry I’ll attach the document of L1TW paid and ask them whether this can be reclaimed and if not, why.

There’s no provision in swiss tax law for this, and that’s pretty much what their explanation will be. End of story.

Whereas DA-1 is based on dual-tax treaties and hence equivalent to law. (But you still need to prove that the distributions were dividends at least in the case of US-dom funds.)

[delivereath]

Trying to decide on which MSCI World ETF I will invest in the coming years. One is based in IE while the second is in LU. There isn’t any information about LU based funds on the first post.

Which one would you pick and why ?

• iShares Core MSCI World UCITS ETF (IE + accumulating)
• HSBC MSCI WORLD UCITS ETF USD (LU + distributed)

[nabalzbhf]

I would pick something US based (more liquidity, less fees, less withholding).

But with an UCITS fund, go with IE (iirc LU has 30% US withholding while IE has 15%).

[San_Francisco]

@delivereath

HSBC MSCI WORLD UCITS ETF USD (LU + distributed)

ISIN?

On a quick search on justETF, I can only find a distributing Irish fund from HSBC.

@nabalzbhf

LU has 30% US withholding while IE has 15%

If it’s physically replicating.
Would it make a difference when replicating by swap?

[nabalzbhf]

@San_Francisco

If it’s physically replicating.
Would it make a difference when replicating by swap?

Good question, my impression is that they’re happy to just get the extra revenue since the benchmark has the withholding afaik.

[Double_A]

@San_Francisco

If it’s physically replicating.
Would it make a difference when replicating by swap?

Swapper shouldn’t have any dividends… You are basically betting with someone on the future value of the stock.

Like “I give you 1000CHF so you can buy x shares of an MSCI World fund, in 1 month you give me back whatever those x shares will be worth.” The fund isn’t involved at all, 2 persons could do this privately even.

But I don’t know, maybe the tax authorities are smart enough to figure out what the swapper funds are doing?

[San_Francisco]

@Double_A

Swapper shouldn’t have any dividends… You are basically betting with someone on the future value of the stock.

Sure - but depending on how the swap fund is constructed, the luxembourgish swap ETF might outperform the Irish that has to pay non-refundable withholding taxes. As an example…

@nabalzbhf

my impression is that they’re happy to just get the extra revenue since the benchmark has the withholding afaik.

Comparing (2010 or older) MSCI World ETF at JustETF, whatever timeframe I choose, Comstage LU0392494562 seems to fare rather well amongst the competition - which is a Luxembourgish swapper. Though I haven’t looked at the impact of Swiss taxation on returns for individuals.

In any case, you rarely if ever get a full replication, as most funds will only partially replicate (so-called “optimized sampling”).

@Double_A

maybe the tax authorities are smart enough to figure out what the swapper funds are doing?

Obviously they are, in many countries, as an income portion has been taxed for years.

[skyw4lker]

This article on Morningstar illustrates that Swap ETFs on the S&P 500 fare better (link: http://www.morningstar.ch/ch/news/190389/bei-usa-etfs-ist-es-„hip-to-be-swap“.aspx) than IRL based ETFs for that index (for the time being).

[delivereath]

@San_Francisco

ISIN?

On a quick search on justETF, I can only find a distributing Irish fund from HSBC.

My bad, the HSBC one is also from IE.

[covfefe]

@nugget @Bojack @wapiti @1000000CHF @glina I’ve followed a lot of your posts so tagging you to ask questions.
I’m new to investing and have been enjoying reading this forum last 6 months. Thanks to everyone here for making such a knowledge base and discussion. I have a few newbie questions:

@nugget

find a list of examples here . the reader is encouraged to extend the list

the two examples of “total world” ETFs and SP500 ETFs make it clear: the TWR exceeds the TER by a factor of 3-10. however, based on this point of view, US and IE domiciled funds are perfectly equal for the total world case, assuming you file the W8-BEN. For the SP500 case, the US version is slightly superior. For the EM funds, the IE version is superior: Irelands tax treaties seem to kick in. Next: check differences in composition…

1. The google sheet has orange colour column " reclaim using the DA-1 form, assuming income tax > 15%"… Does it mean 15% overall tax rate or 15% marginal tax rate?

2. As for Emerging Markets (Ireland domiciled), there are 2 options (Distributing & Accumulating) for same fund (both available in ICTax):
   EIMU … iShares Core MSCI EM IMI UCITS ETF USD (Dist) … TER 0.18%
   EIMI … iShares Core MSCI EM IMI UCITS ETF USD (Acc) … TER 0.18%
   If my tax rate is between 8-10% and marginal tax rate between 15-20%, does it make any difference from tax perspective whether the fund is distributing or accumulating? I like the convenience of Accumulating ETF, as I am going to be accumulating for next ~15 years.

3. Is there a VEA equivalent domiciled in Ireland?

Thanks in advance.

[TheBeardedGuy]

Just noticed that the links related to the DA-1 “wegleitung” (walkthrough) from Kanton Zürich are broken in the top post. I wasn’t able to find the right source. Can anyone help?

[nabalzbhf]

First link on google is: https://www.steueramt.zh.ch/internet/finanzdirektion/ksta/de/steuererklaerung/formulare-merkblaetter/_jcr_content/contentPar/form_4/formitems/wegleitung_zum_da_1__0/download.spooler.download.1544688417674.pdf/Wegleitung+zum+DA-1%2C+DA-2+und+DA-3+mit+Fälligkeiten+2018+%28Form+438%29.pdf

[ChickenFat]

The the tax office considering people as professional traders has been the subject of an article in last week’s NZZ
https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.pwc.ch/de/press-room/interviews/pwc_press_20190826_nzz_wick.pdf&ved=2ahUKEwjt_Lq7s7DkAhXB5KYKHVbeCn0QFjAAegQIAhAB&usg=AOvVaw293PB4Qfyl8Gnu22DhYb_J&cshid=1567367723048

[duke9985]

Dea all,

Anybody had a look at the new tax treaty between US and Switzerland.

From here: https://viac.ch/en/academy/lower-fees-and-higher-returns/ it seems the tax treaty actif now. Does this means it becomes better to buy ETF based in USA?

Any thought?

[Matt]

Hi guys! Thanks for all the great information about ETF taxation!

Just a question: how would a Germany-based ETF (ISIN DE…) behave from a L2WT point of view? Would there be a 28% withholding tax? And how much of that would it be possible to get back from Switzerland being a Swiss resident? Thanks in advance!

[nabalzbhf]

AFAIK you can use DA-1.