Switzerland to Exempt Withholding Taxes for Some Group Financing

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By Bryce Baschuk

The Swiss government plans to bolster group financing activities by amending its withholding tax ordinance to exempt interest payments for certain intra-group loans.

The goal of the amendment is to encourage Swiss-based multinational companies to pursue targeted financing activities in Switzerland rather than abroad, according to a March 10 news release.

Switzerland’s Federal Council approved the amendments March 10, and the changes are scheduled to enter into force April 1.

35 Percent Withholding Tax

For years, Swiss-based multinational companies have pursued targeted funding opportunities abroad to avoid paying a 35 percent withholding tax on interest payments for certain intra-group loan agreements.

The amendment seeks to exempt any withholding tax from bonds that are guaranteed by a Swiss group company and issued to a foreign group company that belongs to the same group, according to the Swiss Federal Department of Finance.

“Forwarding of funds from the foreign issuer to a group company established in Switzerland will be possible up to the maximum amount of the equity capital of the issuer without the interest on it being subject to withholding tax,” the agency said.

The amendment to Switzerland’s withholding tax ordinance will “significantly improve the ability to operate and manage group financing activities from within Switzerland,”Deloitte said. “Both global financing activities and group wide cash pools may benefit.”

“This change will make Switzerland significantly more attractive for all kinds of group financing activities,”said Deloitte in a blog post.

Group Financing

The Swiss Federal Finance Department said the amendment would both “strengthen” the incentive for companies to locate their headquarters in Switzerland and encourage additional tax receipts stemming from direct and indirect profit taxes.

The government said the shift would likely result in “negligible”short-term reductions to withholding tax receipts, according to its news release.

Though Swiss lawmakers previously sought to modernize the alpine nation’s tax withholding legislation in 2014, the reform effort was suspended and awaits the result of a 2018 referendum vote.

In Switzerland, any legislative changes may be subject to a referendum vote if at least 50,000 signatures are collected.

To contact the reporter on this story: Bryce Baschuk in Geneva at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj in London at psukhraj@bna.com

For More Information

The Ordinance on the Withholding Tax is in German at: https://www.newsd.admin.ch/newsd/message/attachments/47510.pdf

The Report on the results: Consultation procedure for the amendment of the regulation on the withholding tax (consolidated financing), is in German at: https://www.newsd.admin.ch/newsd/message/attachments/47513.pdf

The Explanation: Amendment to the regulation on the deduction of tax (consolidated financing) is in German at: https://www.newsd.admin.ch/newsd/message/attachments/47516.pdf

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