Early in June 2017 the Swiss Federal Council initiated the consultation on the proposed Federal Act (hereinafter – the Act) on the Calculation of the Participation Deduction for Too-Big-to-Fail (TBTF) Instruments. The Act is intended to prevent an increased tax burden caused by the issuance of certain financial instruments in order to facilitate banks’ accumulation of capital.
Thus it is proposed to overcome the negative effect of TBTF instruments on the participation deduction for profit tax. To achieve this, the interest paid to investors and the transfer of funds from TBTF instruments recognised in the statement of financial position shall be excluded from the calculation of the participation deduction.
The Act should prevent a higher tax burden for banks’ group parent companies when TBTF instruments (CoCos, write-off bonds and bail-in bonds) are issued. These instruments are already exempt from withholding tax and stamp duty, and the change will extend the exemption to profit tax and strengthen the capital base of banks.
Group parent companies of all banks in Switzerland will be able to benefit from the novelty after the issuance of TBTF instruments has been approved by FINMA. This will guarantee a faster accumulation of capital and greater stability for the Swiss financial centre.