Switzerland: Switzerland considering notional interest deduction on equity

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Switzerland: Switzerland considering notional interest deduction on equity

savoia.jpg

zulauf.jpg

Reto Savoia


René Zulauf

As part of the Swiss Corporate Tax Reform III, which will lead to a replacement of the various special Swiss cantonal tax regimes by a whole host of measures in the 2018 – 2020 timeframe, Switzerland is considering introducing, among other measures, a notional interest deduction on equity. Notional interest deduction on equity is an internationally accepted concept, which has been introduced in Belgium and Luxembourg, among other jurisdictions. The concept is based on the notion that the tax code should not influence the decision on whether to finance a company through debt or equity.

There are several ways to design such a Swiss notional interest deduction for tax purposes that would be granted in addition to the tax deductibility of arm's length interest on debt. While the notional interest deduction will be available to all Swiss companies, its intent is primarily to benefit financing activities.

To this end, and to limit the broad loss of tax revenues that would be brought about by a notional interest deduction on the entire equity of a Swiss company, the notional interest deduction will likely only be granted on 'surplus equity'. Borrowing from the concept of Swiss thin capitalisation limitations, which require a certain equity underpinning per different class of assets, the required surplus equity could be defined in such a way as to mainly benefit financing activities.

While the introduction of a notional interest deduction is controversial in Switzerland mainly because of the feared loss in tax revenues if it were designed too generously, it is expected that it will be introduced in some form. It is the only practical measure to keep existing considerable financing activities of multinationals in Switzerland and to attract additional financing activity.

Reto Savoia (rsavoia@deloitte.ch)

Tel: +41 58 279 6357
René Zulauf (rzulauf@deloitte.ch)

Tel: +41 58 279 6359

Deloitte

Website: www.deloitte.ch

more across site & shared bottom lb ros

More from across our site

Veteran Elizabeth Arrendale will lead the new advisory practice, which will support clients with M&A tax structuring, post-deal integration, and more
MAP cases keep increasing, and cases closed aren’t keeping pace with the number started, the OECD’s Sriram Govind also told an ITR summit
Nobody likes paperwork or paying money, but the assertion that legal accreditation doesn’t offer value to firms and clients alike is false
Ryan hopes the buyout will help it expand into Asia and the Middle East; in other news, three German finance ministers have called for a suspension of pillar two
SKAT, which was represented by Pinsent Masons, had accused Sanjay Shah and other defendants of fraudulent dividend tax refund claims
TP managers must be able to explain technical issues in simple terms, ITR’s European Transfer Pricing Forum heard
Prudential had challenged HMRC over VAT group relief; in other news, Donald Trump unveiled timber and wood tariffs, and the European Commission published a ViDA implementation strategy
Australia’s CbCR rules have ‘widespread support’ and do not put American companies at a competitive disadvantage, the FACT Coalition said
Baker McKenzie advised two of the member firms involved, while several advisers provided transaction counsel to US-based Grant Thornton Advisors
Foreign remittance requirements put additional administrative burden on Indian law firms and strain their relationship with foreign associate firms, according to practitioners
Gift this article