Previous SFTA practice
Swiss Federal Administrative Court's recent decision
Comment


In times when many companies are economically and financially distressed, dealing with restructurings and its tax consequences take on central significance. With its latest ruling of 29 November 2021,(1) the Swiss Federal Administrative Court has adopted a welcome change to the long-standing practice of the Swiss Federal Tax Administration (SFTA) whereupon distressed Swiss companies have to choose between making use of the stamp duty restructuring relief or creating withholding tax-free repayable capital contribution reserves.

Previous SFTA practice

As a general rule, capital contributions to a Swiss resident company are subject to one-time capital duty at a rate of 1%. However, to avoid burdening the restructuring efforts of companies by levying stamp duty on contributions that are intended to help restructure the company, each Swiss company can make use of the one-time stamp duty restructuring relief in the total amount of 10 million Swiss francs during its lifetime. In cases where the relief threshold of 10 million Swiss francs is exceeded, the company may request a waiver of issuance stamp duty from the SFTA.

It must be noted that according, to the SFTA's current practice, existing losses must be booked out in the balance sheet in order to benefit from the restructuring relief or the waiver for stamp duty purposes.

Future distributions of reserves paid out of capital contributions are neither subject to 35% Swiss withholding tax nor to income tax for individuals who are tax resident in Switzerland.

As a consequence, a Swiss company previously had to choose between the creation of capital contribution reserves and relief from issuance stamp duty as the restructuring exemption of up to 10 million Swiss francs with regard to the waiver for issuance stamp purposes was only available if losses were offset according to the previous practice of the SFTA.

Swiss Federal Administrative Court's recent decision

Accordingly, as opposed to the previous SFTA practice and in consideration of the relevant changes to the Swiss tax legislation in the past years, the Court ruled that in order to benefit from the stamp duty restructuring relief or the waiver of stamp duty, Swiss companies were no longer required to book out losses in the balance sheet, which is the prerequisite for the creation of capital contribution reserves.

Comment

Due to the welcome ruling by the Court, the SFTA needs to adapt its practice so that distressed Swiss companies receiving contributions in the event of a restructuring can benefit from the creation of withholding tax-free repayable capital contribution reserves and simultaneously also from the restructuring relief and/or a waiver for stamp tax purposes. While the Swiss Federal Tax Administration's ruling is final when it comes to the waiver of the stamp duty, the Swiss Federal Tax Administration still has the right to appeal against the change of practice with regard to the stamp duty restructuring relief in the total amount of 10 million Swiss francs.

For further information on this topic please contact Fabienne Limacher or Maurus Winzap 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.

Endnotes

(1) A-5073/2020.