After having informed about the key parameters of the planned Swiss withholding tax reform in June (see our prior blog post), the Swiss Federal Council agreed on further details during its meeting on 27 September 2019.
The planned Swiss withholding tax reform aims at strengthening the Swiss debt capital market and increasing tax honesty of Swiss resident individual investors. In pursuit of these goals, the Swiss Federal Council communicated four additional key parameters to complement the ones agreed and published in June:
- Indirect investments in debt instruments should be subject to the Swiss withholding tax. This will apply to both Swiss and non-Swiss investment funds, and to both accumulating and distributing funds.
- The threshold for bank interest triggering the application of the Swiss withholding tax should remain at the current level of CHF 200 per calendar year.
- The current rules on the participation exemption will not be amended. Still, the Swiss Federal Council wants to elaborate further on this topic in the consultation draft, which is expected to be published early next year.
- The Swiss securities transfer tax is proposed to be abolished for Swiss debt instruments.
The Swiss Federal Council expects the reform to cause a shortfall in tax revenue of about CHF 250 million. However, it anticipates this shortfall to be offset by the positive fiscal effects of the strengthened Swiss debt capital market and the enhanced measures on securing tax honesty.
This latest communication from the Swiss Federal Council mainly provides additional guidance on certain points. The treatment of investment funds under the new Swiss withholding tax regime was already outlined in June and the detailed technical aspects are not yet known. Similarly, the fact that there is little appetite to amend the participation exemption was already signalled in the publication from June. The main news is the planned abolishment of the Swiss securities transfer tax for Swiss debt instruments, which would of course be very positive and increase the competitiveness of the Swiss capital market even further.
At this stage many points remain unclear, including details about the envisaged shift to the paying agent system for certain types of payments, the application of the Swiss withholding tax to derivatives and how the transitional solution for “too big to fail” instruments will look. We would expect that the consultation draft, which should be published in early 2020, will clarify on these and other open questions.
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