All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Switzerland: Decision of the Geneva Administrative Court in relation to safe haven interest rates on loans to related parties



Ferdinando Mercuri

Maja Magnard

According to the respective Circular Letter published annually by the Swiss Federal Tax Administration (SFTA) a minimum interest rate has to be applied on loans to shareholders or related parties. This minimum interest rate is a safe haven rate in the sense that a lower rate could be applied if the taxpayer were able to sufficiently prove that the safe haven rate is not at arm's length in given circumstances. This safe haven minimum interest rate has to be applied in situations where the loan is fully equity financed and the company has no interest-bearing liabilities. In case the interest charged on the loan to the shareholder or related party were not to meet such safe haven rates and the taxpayer were not able to prove that the actual rates applied were at arm's-length, the tax authorities could i) add back the amount of interest considered to be too low to taxable income and ii) reclassify such interest as a deemed dividend to the borrower, subject to 35% withholding tax (to be grossed up to 53.84 % on the notion that the deemed dividend is equal to 65%, that is net of 35% withholding tax), which may be fully or partly recoverable depending on the case, that is an applicable double tax treaty in case of a foreign recipient.

However, where the loan is funded through liabilities with third parties, the applicable interest rate should amount to the average interest rates paid by the company during the two past financial years, increased by a spread of 0.5% for loans up to CHF10 million ($11 million) and by a spread of 0.25% for loans above this amount. In any case, the minimum interest rate established by SFTA for the relevant tax period has to be applied, even if the interest paid plus above spread would lead to a lower rate.

The above principle was applied by the Geneva Administrative Court (GAC) in a judgment issued on February 19 2013 in the following case:

A Geneva corporation, X SA, granted a loan to its shareholder. The interest rate applied by X SA was in accordance with the SFTA's minimum safe haven rates as above.

However, X SA paid interest on mortgage debt to a third party during the tax period. Although the mortgage debt clearly was related to real estate, the CAG confirmed the view of the tax authorities that since the company paid interest on third party debt, the loan should be considered funded by third party debt and a spread of 0.5 % or 0.25% respectively was to be added to the average interest paid.

Ferdinando Mercuri (

Tel: +41 58 279 9242

Maja Magnard (

Tel: +41 58 279 9240


More from across our site

This week European Commission officials consider legal loopholes to secure minimum corporate taxation, while Cisco and Microsoft shareholders call for tax transparency.
The fast-food company’s tax settlement with French authorities strengthens the need for businesses to review their TP arrangements and documentation.
The full ALP model will be adopted through a new TP regime, which is set to boost the country’s investments and tax certainty.
Tax professionals have called on the UK government to reconsider its online sales tax as it would affect the economy at the worst time.
Tax professionals have called on companies to act urgently to meet e-invoicing compliance targets as the EU plans to ramp up digitisation.
In the wake of India’s ambitious 25-year plan for economic growth, ITR has partnered with leading tax commentators to discuss what the future will look like for India and for the rest of the world.
But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree