Swiss 10/20/100 Non-Bank Rule

Transcription

1 Swiss 10/20/100 Non-Bank Rule By Susanne Schreiber, Daniel U. Lehmann and Christoph Suter Bär & Karrer Ltd., Zurich Bär & Karrer Lawyers Zürich Bär & Karrer AG Brandschenkestrasse 90 CH-8027 Zurich Phone: Fax: Genf Bär & Karrer SA 12, quai de la Poste CH-1211 Geneva 11 Phone: Fax: Lugano Bär & Karrer SA Via Vegezzi 6 CH-6901 Lugano Phone: Fax: lugano@ Zug Bär & Karrer AG Baarerstrasse 8 CH-6302 Zug Phone: Fax: zug@

2 Bär & Karrer Susanne Schreiber, Daniel U. Lehmann and Christoph Suter 2 5 Legal Basis Unlike many countries, Switzerland does not levy an interest withholding tax on interest paid on private and commercial loans (including on arm's length intercompany loans). However, a 35% withholding tax is levied on interest paid to Swiss or foreign lenders on bonds or similar debt instruments issued by Swiss resident issuers, as well as on bank interest. Notions of Bond and Bank under Swiss WHT Under Swiss tax law, the definition of a bond is broader than commonly understood under Swiss civil law or referred to in financial markets. The Swiss Federal Supreme Court considers that bonds or debentures are written debt acknowledgments for fixed amounts which are issued in multiple tranches at comparable conditions for the purpose of collective financing, and which allow the lender to evidence, reclaim or transfer its receivable. Loans qualify as bonds for Swiss WHT purposes if the following conditions are met: A Swiss borrower issues written debt acknowledgments over fixed amounts; these written debt acknowledgments are based on a single credit agreement and have identical conditions; there are more than 10 non-bank lenders (including lenders under subparticipations), i.e. not including Swiss or foreign banks as defined by the Swiss Federal Banking Act (SFBA) or comparable foreign banking legislation at the place of establishment of the lender; and the total amount of lending is at least CHF 500'000. Loans qualify as debentures similar to bonds for Swiss WHT purposes if the following conditions are met: A borrower issues written debt acknowledgments over fixed amounts; these written acknowledgments have variable conditions; there are more than 20 non-bank lenders, i.e. lenders other than Swiss or foreign banks as defined by the applicable banking legislation; and the total amount of lending is at least CHF 500'000.

3 Bär & Karrer Susanne Schreiber, Daniel U. Lehmann and Christoph Suter 3 5 Bank interest is considered interest paid by Swiss banks or Swiss branches of foreign banks acting under a banking license. In addition, it includes interest from any company that publicly offers to accept interest-bearing deposits or that accepts interest-bearing deposits on a continuous basis from more than 100 depositors (not counting Swiss or foreign banks as defined by the applicable banking legislation) with an aggregate amount of deposits of at least CHF 5'000'000. In addition to banks, companies under common consolidation with the borrower are not counted for purposes of the 10/20/100 non-bank rule. If the 10/20/100 non-bank rules as well as the intercompany counting rule are not complied with, a 35% withholding tax is imposed on interest payable by the borrower to all lenders within the category of borrowing for which the rule was violated (i.e. bonds, debentures similar to bonds, or bank deposits). Non-Swiss Borrowers/Issuers Interest on debentures issued by foreign borrowers are generally not subject to Swiss interest withholding tax, regardless of whether the 10/20/100 bank rules are complied with or not. However, such debentures can be deemed to be issued by a Swiss borrower, and therefore subject to the 10/20/100 non-bank rules, if the following conditions apply: The loan issued by the non-swiss borrower 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 in respect of the 10/20/100 non-bank rule as Swiss statutory law limits such guarantees to freely distributable reserves of the guarantor); the proceeds from the issuance of the loan by the non-swiss borrower are directly or indirectly - lent onwards to a Swiss group company; and such lending to a Swiss group company exceeds the equity of the non-swiss borrower (as calculated under IFRS rules) at the year-end closing date of the non-swiss borrower. Under these conditions, the loan issued by a non-swiss borrower is assimilated to a Swiss-issued loan; a violation of the 10/20/100 non-bank rule would therefore trigger 35% Swiss interest withholding tax on interest payments in relation to such loan. In addition, the wording of the law suggests that group companies are also counted as lenders under the 10/20/100 non-bank rule in case of a non-swiss borrower. This is different from the counting rules applicable to Swiss borrowers (see above). While there are good arguments to support that the counting rules should be the same in both situations so that group companies are never count-

4 Bär & Karrer Susanne Schreiber, Daniel U. Lehmann and Christoph Suter 4 5 ed, it appears prudent to count group companies as lenders in case of a non- Swiss borrower until there is an administrative practice or a court ruling confirming the contrary. Contractual Safeguards Credit facility agreements entered into by a Swiss borrower, or a non-swiss borrower under a guarantee with a Swiss parent company, should state that: the lenders are not allowed to assign, transfer, or grant sub-participations of the loan or any portion of it to any other lenders which are non-banks, or the lenders have to ensure that at no times assignments or transfers are made, or sub-participations are granted, by which the number of 10/20 nonbank lenders would be exceeded. These contractual safeguards could help prevent a re-qualification from loan to bond with respective Swiss interest withholding tax consequences. Conclusions When entering into external financing transactions where either a Swiss borrower or a Swiss guarantor is involved, or where proceeds are planned to be used in Switzerland, compliance with the 10/20/100 rule should be ensured by agreeing on appropriate contractual safeguards. In respect of intercompany loans and cash pooling arrangements among group companies, particular attention should be paid to the contractual mechanism if a foreign group company benefits from a guarantee granted by a direct or indirect Swiss parent company. To obtain certainty about the Swiss tax treatment, seeking advance clearance from the Swiss Federal Tax Administration by way of a tax ruling is recommended. Please note that this briefing contains only a generic overview and does not purport to be comprehensive, or prevent from taking advice on a specific fact pattern that may arise.

5 Bär & Karrer Susanne Schreiber, Daniel U. Lehmann and Christoph Suter 5 5 Your contacts Susanne Schreiber T: susanne.schreiber@ Dr. Daniel U. Lehmann T: daniel.lehmann@ Christoph Suter T: christoph.suter@ Further contacts: Daniel Bader T: daniel.bader@ Paolo Bottini T: paolo.bottini@ Bär & Karrer Ltd. Brandschenkestrasse 90 CH-8027 Zurich T: F: zurich@ Zurich, Zug, Geneva, Lugano Peter Reinarz T: peter.reinarz@