Strengthening of the debt capital market planned

Federal Council plans tax reform

The Federal Council plans to strengthen the debt capital market in Switzerland in the course of a tax reform. In addition, a loophole in the withholding tax is to be closed. Consultation on the amendment of the withholding tax law was opened on 3 April 2020.

The reform is intended to exempt domestic legal entities and foreign investors from withholding tax on interest bearing investments. Groups would thus be given the opportunity to issue bonds from Switzerland without any withholding tax obstacles. The issuance of bonds previously made abroad could thus be made from Switzerland, which would create an incentive for increased intra-group financing activities in Switzerland. As a further part of the reform, the turnover stamp tax on domestic bonds would also be abolished.

In addition, a change to the paying agent principle is to be implemented as part of the reform effort. This means that in future withholding tax would mainly be levied by banks. The introduction of the paying agent principle would simultaneously close a loophole in the withholding tax system for Swiss tax resident individuals receiving foreign interest income.

The proposed changes are expected to initially lead to lower revenues, particularly at the federal level, despite the closing of the loophole in relation to withholding tax. However, by providing medium and long-term impulses for value creation and employment in the financial sector, the reform should generate higher revenues for the Federation as well as for the cantons and municipalities.

April 2020 | Authors: Dr. Samuel Bussmann, Daniela Arth

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