Swiss withholding tax - status quo, or is it? - Tax and Legal blog


On Sunday, 25 September 2022, the Swiss population rejected the withholding tax reform that sought to

  • abolish withholding tax on Swiss bond interest payments
  • partially abolish withholding tax on interest on bank accounts
  • abolish securities transfer tax on the trading of Swiss bonds

The intention of the reform was to promote the Swiss debt capital market. Though the rejection of the reform means no legislative change, the current environment is rapidly changing with rising interest rates around the globe. In our view, it is therefore time to remind market players of what they need to consider with regard to withholding tax when issuing or trading Swiss bonds. A particular focus is made in this blog on the relevance of withholding tax in derivative transactions with notional Swiss bonds.

1     Withholding tax in general

Generally, 35% withholding tax is levied in Switzerland on income from movable assets, in particular on income from:

  • bonds, serial mortgage certificates, and debt register credits issued by a Swiss resident person;
  • units in collective investment schemes issued by a Swiss resident or by a non-Swiss resident person in conjunction with a Swiss resident person; and
  • customer deposits with domestic banks and savings banks.

Withholding tax is also generally due on dividends paid from Swiss shares. However, this blog focuses on interest payments (with reference to dividend payments where appropriate).

2    Derivative transactions and Swiss withholding tax

The seller of a derivative with a notional Swiss bond as the underlying asset usually hedges the derivative by holding the notional bond in its own books. In case the notional bond’s interest is subject to Swiss withholding tax, the issuer of the notional bond pays only 65% of the interest to the holder of the bond and 35% of the interest to the Swiss Confederation. Reclaiming such withholding tax can be tricky in cases where the final recipient of the interest that suffered withholding tax and the person who initially received the interest are not the same – which is typically the case in derivative constellations.

3    Reclaim of Swiss withholding tax

3.1    Reclaim of Swiss withholding tax for Swiss investors

Swiss-resident investors can usually reclaim Swiss withholding tax by declaring the revenue that suffered withholding tax in their annual tax return. The withholding tax should then be credited against the ordinary income tax, provided the investor had the “right to use” the revenue that suffered withholding tax at the time when the revenue was due to be paid.

3.2    Reclaim of Swiss withholding tax for non Swiss investors

A non Swiss investor can generally reclaim Swiss withholding tax under the following conditions:

  • The non Swiss investor’s country of residence has concluded a double tax treaty (“DTT”) with Switzerland;
  • The non Swiss investor is “resident” in the sense of the applicable DTT;
  • The DTT covers withholding tax;
  • The DTT limits Switzerland’s right to levy tax on the respective type of revenue (dividend or interest);
  • The non Swiss investor is the beneficial owner of the revenue that suffered Swiss WHT; and
  • No treaty abuse or other sort of tax avoidance scheme has occurred.

4    Beneficial ownership

4.1     Swiss investors vs. non-Swiss investors

As stated above, a non Swiss investor in Swiss bonds must be the beneficial owner of the interest from such bonds in order to be entitled to reclaim Swiss withholding tax (provided all other conditions are met). According to Swiss case law, the term “right to use” in Swiss domestic withholding tax law and the term “beneficial ownership” in Swiss international tax law are identical to a large extent (without specifying why they are not entirely identical). Accordingly, the elaborations below on beneficial ownership and the implications on derivative transactions should equally apply for both Swiss and non-Swiss investors.

In derivative transactions, the condition of beneficial ownership plays a prominent role as the recipient of the Swiss bond’s interest usually must pass on this interest to a third party.

4.2    The definition of beneficial ownership

The term “beneficial ownership” is not defined in Swiss tax legislation. Rather, appropriate interpretations of the term have been left to be determined by the courts and the Swiss Federal Tax Administration (“SFTA”). According to the Swiss Federal Supreme Court, the dividend or interest recipient is generally the beneficial owner if they can fully dispose of the amount (i.e. can fully benefit from such dividend or interest without being legally, contractually or factually obliged to pass on the dividend or interest to a third party) (BGE 141 II 447, the “Denmark Case”).

4.3     Beneficial ownership in derivative transactions

The SFTA regularly states that they usually qualify the buyer of a derivative (with a Swiss notional security) as beneficial owner of the notional security’s revenue. This is in line with the Swiss Federal Supreme Court’s definition of beneficial ownership – provided the buyer of the derivative has itself no obligation to pass on the notional security’s revenue to a third party, which is often not the case or difficult to prove.

In this regard, it is worth noting that the SFTA obliges Swiss banks and custodians acting as the “short” party on the sale of Swiss securities to levy 35% withholding tax on the manufactured dividend or interest paid to the buyer of the shares. This practice is – after the rejection of the withholding tax reform – still short of a legal basis (which would actually be required to levy a tax), but is generally accepted in the market. As such a tax cannot be enforced against foreign banks or custodians, the SFTA generally requires foreign banks and custodians to issue a tax voucher to its client that confirms that the withholding tax or a withholding tax substitute has been deducted on the credit advice and that the appropriate amount has been paid to the SFTA.

Increasing interest rates makes withholding tax more relevant and will lead to a more thorough consideration of the respective tax clauses in derivative transaction contracts. Sellers of derivatives with notional Swiss bonds should be aware that they may most likely not be able to reclaim Swiss withholding tax levied on the interest from the Swiss notional bond. Sellers of derivative transactions on the one hand should make sure withholding tax is priced into the derivative.

On the other hand, beneficial owners (usually buyers of derivatives) should make sure they receive all necessary documents to reclaim the Swiss withholding tax. As the SFTA assesses reclaims on a case-by-case basis, we highly recommend the party wanting to reclaim Swiss withholding tax (regardless of whether the Swiss securities’ revenue is interest or another kind of revenue), to obtain a ruling from the SFTA that

  • confirms the beneficial owner;
  • outlines the exact procedure to reclaim Swiss withholding tax;
  • lists the evidentiary documents to be filed together with the reclaim.

Notably, such a ruling must be obtained before the transactions is executed.

If you would like to discuss more on this topic, please do reach out to our key contacts below.

Key contacts


Brandi Caruso - Partner, Financial Services Tax & Legal

Brandi heads Deloitte’s Financial Services Tax team in Switzerland and Liechtenstein. She has extensive expertise in advising the Swiss financial services industry on the implementation of US and international transparency regimes (including QI, FATCA, Section 871(m), CRS, MDR and DAC6). Brandi also leads the Financial Services Tax team's efforts relating to innovative technology solutions. Brandi is a US Certified Public Accountant and has 20 years of experience with Deloitte and has worked in London, San Diego and Zurich.


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Danielle Koyuncu - Director, Financial Services Tax

Danielle is a Director in the financial services Swiss tax team, specialized in advising financial institutions in the banking, insurance and asset management investment area. Danielle is a Swiss Certified Tax Expert with more than 15 years of experience in corporate international taxation and Swiss VAT.



Maja Magnard - Director, Tax & Legal

Maja Magnard is a Director in our Corporate Tax practice focussing on the French speaking part of Switzerland, with 14 years of professional experience. Maja has significant professional experience as an international corporate tax specialist both in Financial services industry and the industrial field, in the area of M&A, cross border structuring, business reorganisations and negotiating tax rulings with the Swiss tax authorities at all levels for various types of taxes. Maja is a Swiss Certified Tax Expert, member of the Certified Tax Expert Organization and Expert for the Swiss Tax Academy exams.



Steven Gruendel - Assistant Manager, Financial Services Tax

Steven is an Assistant Manager in Financial Services Tax. He advises Swiss and international financial service providers on various Swiss tax matters such as corporate income tax, withholding tax and Swiss stamp taxes. Steven is holding a Master of Law from the University of Lucerne.



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