International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

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

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 across site & bottom lb ros

More from across our site

12th annual awards announces winners
The Fair Tax Foundation published the annual UK public sentiment barometer on tax justice ahead of its flagship event, which ITR attended.
The UK public broadcaster acknowledges paying a low tax rate in India, while the ICAEW appoints a new president for 2023/24.
The Canadian proprietor of Canary Wharf and Manhattan West faces accusations of avoiding tax through subsidiaries in Bermuda and beyond.
The Department of Finance Canada has put forward a package of transfer pricing reforms to clarify existing provisions and address what it says is a disproportionate loss of tax revenue.
Developments included the end of Saudi Arabia’s tax amnesty, Poland’s VAT battle with the EU, the Indirect Tax Forum, India’s WTO complaint, and more.
Charlotte Sallabank and Christy Wilson of Katten UK look at the Premier League's use of 'dual representation' contracts for tax matters.
Shareholders are set to vote on whether the asset management firm will adopt public CbCR, amid claims of tax avoidance.
US lawmakers averted a default on debt by approving the Fiscal Responsibility Act, but this deal may consolidate the Biden tax reforms rather than undermine them.
In a letter to the Australian Senate, the firm has provided the names of all 67 staff who received confidential emails but has not released them publicly.