Swiss Withholding Tax: New Flexible Administrative Practice For Non-Swiss Bonds Issued Under Swiss Parental Guarantee

Author:Ms Susanne Schreiber, Peter Reinarz and Christoph Suter
Profession:Baer & Karrer
 
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A practice note published by the SFTA on 5 February 2019 adopts a highly welcome loosening of the conditions under which bonds/debentures may be issued by non-Swiss borrowers under a guarantee of a Swiss parent company without triggering Swiss federal withholding tax on the interest payments.

Long-standing administrative practice of the Swiss Federal Tax Administration (SFTA) likens "bonds/ debentures" issued by a non-Swiss resident issuer with a guarantee from its Swiss resident direct or indirect parent to a bond/debenture issued in Switzerland, for federal interest withholding tax, if certain parameters (as described below in more detail) are met.

A practice note published by the SFTA on 5 February 2019 adopts a highly welcome loosening of the conditions under which bonds/debentures may be issued by non-Swiss borrowers under a guarantee of a Swiss parent company without triggering Swiss federal withholding tax on the interest payments ("deemed Swiss bond/debenture"). The new practice takes immediate effect.

According to the previous practice rules, interest on bonds/debentures issued by non-Swiss borrowers were likened to a Swiss-issued bond/debenture, if the following conditions were cumulatively met:

The bond issued by the non-Swiss debtor is guaranteed by a direct or indirect Swiss parent company by way of a down-stream guarantee (according to long-standing administrative practice, guarantees provided by other group companies - so called up- and cross-stream guarantees - are not considered harmful as Swiss statutory law limits the validity of such guarantees to freely distributable reserves of the guarantor); the proceeds from the issuance of the bond/ debenture are directly or indirectly on-lent to one or more Swiss affiliates of the foreign issuer; and such on-lending to Swiss affiliates...

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