Where Switzerland Misinterpreted the CRS Implementation Handbook

This episode examines a narrow but consequential interpretative issue:

Did Switzerland extend the CRS look-through rules for FI-trusts beyond what the OECD Implementation Handbook actually provides?

The debate centers on Chapter 6.3 of the CRS Implementation Handbook, specifically paragraphs 254–256 (pp. 109–110), dealing with trusts that qualify as Reporting Financial Institutions.

🔎 The Text of the HandbookParagraph 254 – Identifying Reportable Accounts

The Handbook states:

The debt and equity interests of a trust constitute Reportable Accounts where they are held by a Reportable Person.

It then clarifies that the CRS defines the following entities as non-reportable persons:

• Financial Institutions

• Regularly traded entities

• Central banks

• International organisations

• Government entities

This establishes the starting point:

If the equity interest is held by a Financial Institution, it is not a Reportable Person.

Paragraph 256 – Applying the Due Diligence Rules

The Handbook further states:

Where an equity interest is held by an Entity, the equity interest holder is instead identified as the Controlling Persons of that Entity.

It then explains that a trust must apply a look-through approach to a settlor, trustee, protector, or beneficiary that is an Entity to identify the relevant Controlling Persons—corresponding to AML/KYC beneficial ownership principles.

⚖️ The Interpretative Fault Line

The controversy arises from how the term “Entity” is read in paragraph 256.

The critical observation:

Nowhere—explicitly or implicitly—does paragraph 256 state that “Entity” includes non-reportable entities such as Financial Institutions.

Paragraph 254 has already distinguished:

• Reportable Persons

• Non-reportable entities (including FIs)

The textual argument advanced by critics is therefore:

If paragraph 254 establishes that Financial Institutions are non-reportable persons, and paragraph 256 refers to “Entities” without overriding that distinction, then the look-through rule logically applies only where the entity is a Reportable Person (e.g., Passive NFE), not where it is a Reporting FI.

🇨🇭 The Swiss Position

Swiss revised guidance interpreted paragraph 256 as requiring FI-trusts to:

• Look through entity equity holders

• Identify and report controlling persons

—even where the entity is itself a Financial Institution.

Critics argue that this effectively:

• Treats FI equity interest holders similarly to Passive NFEs

• Removes the structural “FI blocker” principle

• Expands reporting beyond the CRS text

Supporters argue the approach aligns with transparency objectives and AML alignment.

🎯 Why This Matters

The dispute is not about transparency—it is about architectural coherence.

If Financial Institutions are non-reportable persons by design, then requiring look-through of FI equity interests may:

• Create duplicate reporting

• Disrupt the “closest FI” allocation principle

• Blur the boundary between FI and Passive NFE treatment

The question is whether the Implementation Handbook clarified the Standard—or extended it.

🔑 Key Takeaway

Paragraphs 254–256 of the CRS Implementation Handbook distinguish clearly between:

• Reportable Persons

• Non-reportable entities (including Financial Institutions)

The debate turns on whether “Entity” in paragraph 256 implicitly overrides that distinction—or must be read consistently with it.

For trustees and advisors,