Swiss Tax: Withholding tax and stamp duty on intragroup financing abolished
Under current rules, the use of a Swiss financing vehicle may trigger Swiss withholding tax on interest payments if the activity is deemed to constitute a collective fund borrowing (broadly, if there are more than 20 nonbank borrowers). In certain cases, Swiss stamp duty also may be levied. Although planning techniques can limit or mitigate the withholding tax and stamp duty burden (e.g. via multiple currency or offshore pooling activities), multinational groups frequently find it cumbersome to structure their cash pooling in Switzerland.
The amendments to the Withholding Tax and Stamp Duty Ordinances specifically exclude intragroup financing activities from interest withholding tax and stamp duty, respectively. Intragroup financing, therefore, will fall outside the scope of collective fund borrowing activities, but the new rules will not apply to groups with a Swiss group company that guarantees a bond issued by a foreign group company.
The changes provide a simple solution to issues relating to collective fund borrowing and will facilitate Swiss-centred corporate cash pools and back-to-back financing with accepted margins of typically 0.125% to 0.25% taxed at around 10% under the mixed company regime. In particular, the new rules are addressed to foreign multinational groups and should make Switzerland more attractive as a location for intragroup financing structures. For groups with a Swiss group company guaranteeing a bond issued by a foreign group company, the situation does not change unless these groups are able to replace the guarantee with a guarantee of a foreign group company.
The amendments to the withholding tax and stamp duty rules become effective on 1 August 2021 and apply to payments due after 31 July 2010.