Switzerland: Proposal to amend withholding tax and transfer tax regimes regarding bonds, certain dividends
Swiss Federal Council proposed to amend the withholding tax and transfer tax (stamp) regimes
Swiss Federal Council proposed to amend the withholding tax and transfer tax regimes
The Swiss Federal Council on 15 April 2021 proposed to amend the withholding tax and transfer tax (stamp) regimes.
The proposal would:
- Repeal the 35% withholding tax on interest from bonds and bond-like instruments (but would maintain the withholding tax on interest from deposits at Swiss banks for Swiss resident individuals)
- Repeal the Swiss transfer tax (stamp) liability on transactions with Swiss bonds
- Introduce a legal basis for the withholding tax imposed on “manufactured payments”
- Facilitate a procedure for notification (instead of payment of withholding tax on dividends paid to affiliated group companies)
- Allow the Swiss tax authorities to obtain information on derivatives transactions
The proposal does not include any withholding tax or transfer tax (stamp) relief for Swiss shares or Swiss and foreign funds.
The repeal of the 35% withholding tax liability on interest from bonds is viewed favorably by certain tax professionals, whereas they take a different view of the measure to retain the withholding tax liability on interest from deposits at Swiss banks for Swiss resident individuals because of the current low, nil or even negative interest rates but also because of the withholding tax exemption applicable to interest on bank deposits of up to CHF 200 annually as well as the possibility to make fiduciary deposits at foreign banks without being subject to withholding tax. The proposal could possibly give rise to more costs (notably compliance costs to identify, manage and control the addresses of the relevant account holders; and to define and distinguish between bank deposits and revolving loans) than generating any meaningful tax revenue.
- The proposed transfer tax (stamp) exemption is also viewed favorably by tax professionals.
- There are no proposals for a withholding tax exemption for Swiss bond funds, and some believe this would have been a material contribution to improve the tax environment for Swiss funds and cash management activities in Switzerland.
- The introduction of a legal basis for the withholding tax liability on manufactured dividends would appear to address the imposition of the 35% tax on manufactured payments resulting from a “naked short sale” of Swiss shares. However, the wording in the proposal lacks clarity because the term “manufactured payment” is not properly defined and thus could include other substitute payments, such as a payment reflecting a portion of a dividend embedded into a derivative on Swiss shares.
- Under the proposal, the required shareholding of 20% for the application of the notification procedure would be reduced to 10% for the withholding tax levied on dividends paid to affiliated group companies in Switzerland. For dividends paid to affiliated group companies outside of Switzerland, the provisions of an applicable income tax treaty would remain effective (typically, withholding tax imposed at a rate ranging from 10% to 25% or if not specified, the new domestic rate of 10% would apply). Still, under the proposal, the administrative burden for approval of the international notification procedure would be reduced by extending the validity of the authorization granted for the application of the notification procedure from three to five years.
- Some believe giving the Swiss tax authorities access to information on transactions recorded in the central register of derivatives might need to be qualified, to prevent the Swiss tax authorities from having use of (and to prevent abuse of this access) and thus to slow down and complicate refunds of withholding tax.
Given these observations, it appears Parliament may need to clarify the proposal and amend it to include legitimate relaxations such as for Swiss bond funds as a result of the relief of the withholding tax on interest. The final version if not expected to be effective before 2024.
Read a May 2021 report prepared by the KPMG member firm in Switzerland
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