BASEL: The Swiss Federal Council has proposed an amendment to the Withholding Tax Ordinance that it said will facilitate group financing.
The Council said that groups established in Switzerland often carry out targeted financing activities abroad, thereby avoiding any withholding tax (WHT) that would be due on financing conducted via group companies established in Switzerland. It added that the Swiss economy therefore “misses out on some of the added value in this sector.”
The proposed amendment to the Withholding Tax Ordinance would affect groups in which a Swiss group company (the guarantor) provides a guarantee for a bond of a foreign group company (the issuer) belonging to the same group. Under the amendment, intra-group interest payments made by the Swiss guarantor would no longer be subject to WHT.
In Switzerland, WHT is levied on interest, participation income, lottery winnings, and certain insurance benefits. It is collected from the debtor of the taxable item, in accordance with the debtor principle. It is refunded only if the corresponding income is declared.
In December 2014, the Federal Council proposed a move to a paying agent system, under which the debtor would transfer the full gross amount to the paying agent (typically a bank). Implementation of the proposal has however been put on hold, pending the outcome of the referendum on the popular initiative “Yes to protecting privacy.”
The Federal Council said that its 2014 proposal would have resolved the issue regarding the WHT treatment of group financing, and that, in its stead, the new measure will enhance Switzerland’s appeal as a business location.
