Within the realm of international bond markets, investors
generally do not accept a deduction in withholding taxes (WHTs) on
interest. Bond issuers in jurisdictions where a WHT applies may
therefore suffer a competitive disadvantage, as they may either
have to increase interest rates in order to guarantee an attractive
yield (net of WHT), or face limited demand for their offering due
to its reduced attractiveness. Both situations lead to an increase
in the issuer's costs.
While many industrialised countries have abolished WHTs on bonds
issued to international investors (ultimately maintaining the
competitiveness of their domestic issuers), Switzerland still
levies a 35% federal interest WHT on certain types of collective
debt issues.
