Switzerland adopts withholding tax exemption for intragroup financing

The Swiss parliament approved an exemption from withholding tax for some intragroup interest payments. The amended regulations, which are intended to encourage multinational groups established in Switzerland to carry out targeted financing activities in Switzerland rather than abroad, will enter into force 1 April.

Under the existing system, a Swiss withholding tax of 35% is levied on certain investment income, such as interest on bonds and money market funds. Swiss investors can claim back the withholding tax by declaring the relevant income, but foreign investors can generally only claim back part of the withholding.

The general scope of the new law is to exempt withholding tax on intragroup interest payments in all cases where a Swiss group company provides a guarantee for a bond of a foreign group company belonging to the same group. The exemption is available to companies whose annual accounts are fully consolidated into the consolidated financial statements, or partially consolidated, such as in respect of joint ventures.

The Federal Tax Administration (FTA) said, in the explanatory statement, that if the amount transferred exceeds the equity of the foreign issuer, all amounts transferred in Switzerland would be subject to withholding tax. It said the reform would increase the attractiveness of the Swiss financial market and promote the establishment of headquarter activities.