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

Switzerland: The Swiss Federal Council begins Swiss withholding tax reform

Sponsored by Sponsored_Firms_deloitte.png
ib-switzerland.jpg

André Kuhn and Robin King of Deloitte evaluate the Swiss Federal Council’s proposed reforms to the Swiss withholding tax system.

On June 26 2019, the Swiss Federal Council shared its intentions to reform the Swiss withholding tax system. The need for such a reform is twofold: firstly, the reform is aimed at strengthening the Swiss debt capital market. Secondly, it strives to increase tax honesty of Swiss-resident individual investors.

The key parameters established by the Swiss Federal Council in its 1.5 page communication partially piggyback on the ideas presented in an expert board's report early this year.

The Swiss Federal Council mandated the Federal Department of Finance to prepare a consultation draft, which should be available in the autumn, taking into consideration those key parameters:

  1. In line with the expert group report, the Swiss debt capital market should be strengthened by abolishing the withholding tax on interest paid to Swiss corporate and all foreign investors.

  2. Further, tax honesty of Swiss-resident individual investors should be increased by expanding the withholding tax regime to include foreign interest income received by Swiss resident individual investors. The Swiss Federal Council's communication indicates that this should be achieved through the introduction of a paying agent system. Differently to the expert group report, the Swiss Federal Council does not propose an expansion of the paying agent system to foreign dividend income received by Swiss resident individual investors.

  3. Indirect investments in debt instruments (e.g. through an investment fund) should be treated equivalently to direct debt investments.

  4. Transition rules should be established for "too big to fail" instruments.

  5. A legal basis should be created to apply the Swiss withholding tax to substitute interest/dividend payments, which could, for example, arise in relation to securities lending or repo transactions or as part of derivatives or structured products.

However, the Swiss Federal Council for fiscal reasons rejected a more comprehensive reform, which may have included a reduction of the withholding tax rate for Swiss dividends to 15%. Nevertheless, it asked the Federal Department of Finance to examine whether the Swiss equity capital market can be strengthened through amending relevant income tax rules, in particular in the area of the participation exemption.

Finally, the Swiss Federal Council also turned down the idea of abolishing the turnover tax for Swiss securities. However, it indicated that it may agree to excluding Swiss debt instruments from the turnover tax.

The withholding tax reform would significantly strengthen the position of Switzerland as an international finance and treasury centre as it would allow Swiss resident entities to directly enter the debt capital markets via bond issuances without adverse withholding tax consequences. The Swiss Federal Council's communication does not address many of the detailed technical aspects (e.g. in relation to indirect investments or substitute interest/dividend payments) and operational considerations (e.g. details of the paying agent system). Thus, affected parties should watch out for the consultation draft to be published in the autumn to determine how they may be affected in practice and whether any lobbying efforts are needed.

Deloitte

T: +41 58 279 6328

E: akuhn@deloitte.ch

W: www.deloitte.ch

More from across our site

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.
This week the Biden administration has run into opposition over a proposal for a federal gas tax holiday, while the European Parliament has approved a plan for an EU carbon border mechanism.
Businesses need to improve on data management to ensure tax departments become much more integrated, according to Microsoft’s chief digital officer at a KPMG event.
Businesses must ensure any alternative benchmark rate is included in their TP studies and approved by tax authorities, as Libor for the US ends in exactly a year.
Tax directors warn that a lack of adequate planning for VAT rule changes could leave businesses exposed to regulatory errors and costly fines.
Tax professionals have urged suppliers of goods from Great Britain to Northern Ireland to pause any plans to restructure their supply chains following the NI Protocol Bill.
Tax leaders say communication with peers is important for risk management, especially on how to approach regional authorities.
Advances in compliance tools in international markets and the digitalisation of global tax administrations are increasing in-house demand for technologists.
The US fast-food company has agreed to pay €1.25 billion to settle the French investigation into its transfer pricing arrangements over allegations of tax evasion.
HM Revenue and Customs said the UK pillar two legislation will be delayed until at least December 2023, while ITR reported on a secret Netflix settlement and an IMF study on VAT cuts.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree