The Swiss Federal Council has expressed its will to strengthen the financing activities of groups in Switzerland. Thus, it approved the changes to the Withholding Tax Ordinance on 10 March 2017. The amendments will come into effect on 1 April 2017.
It is often the case that groups established in Switzerland carry out targeted financing activities abroad to avoid withholding tax, which would be due in certain situations, if they had to do financing through group companies established in Switzerland. For this reason, the Swiss economy misses out on some of the added value in the relevant sector.
To retain this added value in Switzerland, the Federal Council intends to adapt the Withholding Tax Ordinance. According to the Swiss Federal Council, the amendment concerns groups in which a Swiss group company provides a guarantee for a bond of a foreign group company (issuer) belonging to the same group. It will be possible to forward funds from the foreign issuer to a group company established in Switzerland up to the maximum amount of the issuer’s equity without the interest on it being subject to withholding tax.
The amendment will give rise to additional tax receipts in terms of these companies’ profit tax, suppliers’ profit tax and the income tax and VAT of additional employees and higher paid staff. In contrast, any short-term reductions in withholding tax receipts should be negligible.
The proposal to reform the Withholding Tax Act (by switching to the paying agent principle) would sustainably resolve the current problems. The reform has been suspended for the time being (awaiting the outcome of the vote on the popular initiative “Yes to protecting privacy”), and the next steps will be decided on after the vote.