IFLR Magazine November 2016

Group financing Interest paid on bonds as defined by the Swiss Federal Tax Administration (SFTA) for Swiss withholding tax (WHT) purposes, which may also include certain types of syndicated loans, issued by a Swiss tax resident debtor is generally subject to WHT at a rate of 35%. This may have an adverse impact on the competiveness of the Swiss capital market.

The significant adverse tax consequences of the qualification as a Swiss bond have raised questions regarding the differentiation between Swiss financing and foreign financing. A proforma issuance through a foreign subsidiary without sufficient substance (i.e. a special purpose vehicle) qualifies as Swiss financing triggering adverse WHT consequences as if the bond were issued by the Swiss parent company. However, for debt financing through a foreign group entity with sufficient substance, the SFTA have developed rules defining the requirements for a possible re-characterisation of a foreign bond as a Swiss bond.