Background
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Comment
On 13 February 2022, the people of Switzerland rejected government- and Parliament-backed changes to the stamp duty law that would have abolished the existing 1% issuance stamp duty charged on capital contributions to Swiss companies. The margins of the vote's rejection were disappointingly clear, with 62.7% of voters against and 37.3% of voters in favour of the proposal.
In Switzerland, 1% issuance stamp duty is levied on capital contributions from shareholders to Swiss companies, which comprises the initial creation and subsequent increases of share capital as well as contributions without any issuance of shares. This stamp duty curbs capital injections as these costs induce shareholders to finance Swiss companies through shareholder loans. Such a financing strategy has proven to be especially harmful in an economic crisis.
In order to eliminate a competitive disadvantage compared with rival centres, which do not have comparable taxes, the Council of States of Parliament followed the decision taken by the National Council in 2013 and, on 2 June 2021, it approved the long-overdue abolition of issuance stamp duty on equity. However, a left-wing political committee collected the 50,000 signatures that are necessary to hold a national referendum and cleared the way for a nationwide vote on the subject.
Under the current legal framework, which remains unchanged, there are still various ways of lowering or avoiding the 1% issuance stamp duty that is charged on equity capital. One common route is to fund Swiss companies through shareholders' interest-bearing or interest-free loans, which do not attract issuance stamp duty. However, interest payments present complexities due to the thin cap and maximum interest rules and the respective transfer pricing issues.
Due to the formal nature of the Swiss issuance stamp duty, it is levied only in the event of a contribution by a direct shareholder. As a result, issuance stamp duty may be avoided if the contribution is made by an affiliated company that is not the direct shareholder. In practice, Swiss companies are often equity financed by indirect contributions (so-called "grandparent contributions"). However, depending on the current group structure, this may lead to higher compliance costs and, unless structured carefully, some inefficiencies when extracting funds out of Switzerland by way of dividends subject to Swiss withholding tax.
In a 29 November 2021 decision,(1) the Swiss Federal Administrative Court adopted a welcome change to the long-standing practice of the Swiss Federal Tax Administration (SFTA), according to which distressed Swiss companies had to choose between making use of the stamp duty restructuring relief or creating withholding tax-free repayable capital contribution reserves when receiving fresh capital from their direct shareholders. This decision is paramount when dealing with restructurings of financially distressed companies, the related tax consequences and avoiding issuance stamp duty leakage.
The abolition of the Swiss issuance stamp duty would have clearly been a welcome measure to strengthen the decision-making neutrality of the tax system and favoured the creation of new equity capital when doing business and investing in Switzerland. Bigger corporate groups and financially distressed companies still have various means of lowering or avoiding the 1% issuance stamp duty on equity capital through careful structuring; however, start-ups, early stage and private equity industries will still have to bear the burden of paying it.
For further information on this topic please contact Maurus Winzap or Fabienne Limacher at Walder Wyss by telephone (+41 58 658 58 58) or email ([email protected] or [email protected]). The Walder Wyss website can be accessed at www.walderwyss.com.
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