The withholding tax is… in the crosshairs of the Federal Council

The reform envisages the abolition of the tax on Swiss interest, with the exception of interest from the assets of natural persons domiciled in Switzerland

The Federal Council intends to strengthen the Swiss marketplace for third-party capital and group financing activities in all sectors.
To this end it adopted the dispatch on an amendment to the Federal Withholding Tax Act (strengthening of the third-party capital market) at its meeting on 14 April 2021.

Bundesgesetz über die Verrechnungssteuer
Loi fédérale sur l’impôt anticipé
Legge federale sull’imposta preventiva

At the same time, it has initiated the consultation procedure regarding the extension of the reporting procedure within a group in the area of withholding tax.
The reform provides for the abolition of withholding tax on Swiss interest with the exception of interest from the assets of natural persons domiciled in Switzerland.
As a result of the reform, it is expected that bond issues hitherto made abroad will in future increasingly be made from Switzerland. This will strengthen the Swiss market for third-party capital.

A stimulus for internal financing activities

The abolition of the withholding tax on interest also provides companies with an incentive to carry out internal financing activities more frequently in Switzerland.
Overall, the reform strengthens the third-party capital market and in the medium to long term will boost value creation and job creation in our country.
In addition, the Federal Council is abolishing the trading tax on Swiss bonds in order to make it more attractive to purchase these bonds via a securities dealer domiciled in Switzerland.
A total of 71 opinions were received during the consultation. A large majority of the participants in the consultation shared the view of the Federal Council that reform in the area of the third-party capital market is necessary.

Botschaft des Schweizerischen Bundesrates zur Verrechnungssteuer
Message du Conseil fédéral suisse sur l’impôt anticipé
Messaggio del Consiglio Federale della Svizzera sull’imposta preventiva

In contrast to the preliminary draft, the Federal Council has decided not to strengthen the guarantee function of the withholding tax. Already under the current system, foreign interest is not subject to withholding tax.
Although this decision weakens the guarantee function for Swiss interest, it must also be said that in the current interest rate environment the withholding tax fulfils its function only to a limited extent.
An effective strengthening of the guarantee function could only be achieved by a new, complex system of tax deduction or by restricting tax banking secrecy.

Financial impacts between short and long term

With regard to the financial repercussions, a distinction must be made between short-term one-off effects, recurrent static effects and long-term dynamic effects.
As a one-off, short-term effect, the reform leads to an estimated revenue shortfall of CHF 1,000 million, which for the Confederation is, however, covered by provisions and therefore has no impact on the budget. This one-off revenue shortfall is due to the fact that the reimbursement of the current withholding tax on interest income can still be claimed for three years.
The recurring static revenue shortfall is estimated at 170 million francs. If interest rate levels increase, revenues will decrease further.

Un gruppo di esperti migliorerà la piazza fiscale elvetica
Tassazione, sedici campi d’azione per la Svizzera che verrà
Sì alla consultazione dell’imposta svizzera sul tonnellaggio

The Confederation assumes 90% of this amount, the cantons 10%. The abolition of the trading tax on Swiss bonds will result in annual revenue losses of CHF 25 million for the Confederation.
From a dynamic point of view, the reform has a very good cost-benefit ratio since it generates impulses which will favour the creation of value and jobs. At the federal level the reform could be self-financing after about five years.
For the cantons and municipalities, which are affected to a lesser extent by the recurring revenue losses, these impulses should lead to higher revenues already in the short term.

A liquidity advantage for the companies concerned

The notification procedure within a group in the context of withholding tax is to be extended. From now on, it can be applied from a shareholding of 10% or more. The authorisation procedure will also be simplified administratively.

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This change has practically no financial repercussions or significant effects on the guarantee function of the tax.
Businesses will gain a liquidity advantage which will mirror that of the Confederation.
At current interest rates, however, this effect will be negligible.