International Debt Financings Of Swiss Headquartered Groups Become Even More Attractive

Author:Dr. Roland Böhi and Danielle Wenger
Profession:Prager Dreifuss
 
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The Swiss Federal Tax Administration recently announced a new practice that significantly improves the ability of corporate groups to raise debt abroad and to use the proceeds in Switzerland.

This new practice will enable tax efficient financings for Swiss groups.

  1. Current Regime

    Today, Swiss headquartered groups looking to raise capital via the international debt capital or bank debt markets may face Swiss withholding tax (WHT) in case the issuer or borrower is a non-Swiss group member and where the structure requires guarantee support by the Swiss parent company.

    As a general rule, WHT (at a rate of 35%) is applicable on the interest payments, unless (a) the number of non-bank lenders to a Swiss borrower is limited to a maximum of 10 (which is typically feasible in bank debt transactions but typically not feasible in debt capital market transactions), or (b) the proceeds raised are only used outside of Switzerland, or (c) if there is backflow to Switzerland, the maximum backflow is capped at the equity amount of the non-Swiss issuer.

    It is obvious that these rules heavily limit Swiss companies to access the international debt financing market.

  2. New Regime

    On 5 February 2019, the Swiss Federal Tax Administration (SFTA) published an important clarification to the last of the afore-mentioned exemptions. The new regime will increase the ability of Swiss groups to raise funds outside Switzerland and to use such funds in Switzerland through the applications of two exceptions:

    2.1. Equity Exception

    Under this exception it is now possible that the non-Swiss issuer, which holds a parent guarantee from the Swiss headquarters, grants a loan back to the Swiss company sourced from...

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