Change of Practice for Intercompany Debt Financing

Withholding Tax, Repatriation of Funds, Foreign Bond, Guarantee

Clarification of the administrative practice regarding the repatriation of funds in the case of domestically guaranteed foreign bonds in accordance with Article 14a paragraph 3 of the Ordinance of 19 December 1966 on Withholding Tax (VStV; SR 642.211).

With effect from 1 April 2017, Article 14a VStV has been adapted. Since then, it has been permissible to repatriate funds to Switzerland in the case of domestically guaranteed foreign bonds, subject to compliance with certain conditions, without attributing the foreign bond to the domestic guarantor for withholding tax purposes.

The current administrative practice is clarified as follows: Credit balances existing between group companies are not deemed to be either a bond or a customer credit for the purposes of withholding tax (irrespective of their term, currency and interest rate), if in the case of domestically guaranteed foreign issuances the volume of funds returned to domestic group companies (generally to the guarantor) does not exceed the sum of the cumulative equity of all foreign group companies (pursuant to Art. 14a para. 2 VStV; so-called "equity option"). If there is no 100 percent shareholding, the equity of the foreign group company is only taken into account according to the respective shareholding.

The repatriation of funds to the domestic group company can be performed either

  • directly by the foreign issuer, or
  • by the foreign issuer first passing on the corresponding funds to foreign group companies, which in turn pass on these funds to domestic group companies up to a maximum of the cumulative equity of the foreign group companies.

In addition, there is no harmful repatriation of funds if the sum of the funds transferred to Switzerland within the framework of domestically guaranteed foreign issuance is not greater than the sum of the loans granted to foreign group companies by domestic group companies (so-called "offsetting option"). The offsetting option and the equity option can be combined with each other.

If a company wishes to make use of the equity and/or offsetting options, it must submit an application for approval to the Swiss Federal Tax Administration (FTA) within the framework of a tax ruling. The requirements for the revision concept of the selected option must also be specified in the advance tax ruling. Once a procedure has been chosen, it must be maintained (principle of consistency).

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February 2019

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