TAX NEWS - June 2010

Swiss Tax: Switzerland Improves Group Financing Conditions

In a bid to improve the Swiss financial centre and to create jobs in Switzerland in the area of internal group financing activities, interest paid out between companies of the same group will in future be exempt from withholding tax and stamp duty.

According to the Swiss Federal Administration, the Federal Council has now adopted the necessary modifications to the respective withholding tax and stamp duty orders. The Federal Administration has also made known that any Swiss groups acting as guarantors of loans issued by a foreign subsidiary will not be affected by the new regulations.

Up until now, internal group financing activities were subject to payments of both withholding tax and stamp duty in Switzerland. Having amended the withholding tax order (l'ordonnance sur l'impôt anticipé – OIA) and the stamp duty order (l'ordonnance sur les droits de timbre – OT), the Federal Council has provided incentives for establishing internal group financing activities, designed to boost job creation.

Furthermore, by amending the orders, the Federal Council aims to contribute to finding a solution to the complex problem posed by group financing. The Federal Council intends to propose more targeted measures within the framework of the next reform of corporate taxation in Switzerland, announced on December 10, 2008.

Given that internal group financing activities do not currently serve to generate important amounts of revenue in terms of stamp duty and withholding tax, the new provisions will not lead to any significant shortfall in fiscal revenue for the state.

The new provisions are due to enter into force on August 1, 2010.