Eva Frehner

Head of Group Tax

This is an automatic translation, which is why errors may occur

The vote on the withholding tax reform is coming up on September 25. It seeks to abolish part of the withholding tax, namely that on bond interest. While it will not lead to any tax savings for companies, SwissHoldings is clear: the outdated and useless tax needs an update. We asked our Head of Swiss Taxation and Head of Tax at Sulzer, Eva Frehner, three questions about the referendum bill. Her answers make clear which problems the reform fixes and what the direct effects of an acceptance would be on the corporate side.

Dear Ms. Frehner, what does the withholding tax mean for international companies?
“Our companies issue bonds to finance innovation, growth or sustainability efforts, for example. They pay interest to the investors who buy these bonds. On Swiss bonds, 35% withholding tax is directly deducted from the interest. Accordingly, the investors receive only 65% of the interest. The rest can theoretically be reclaimed after the correct declaration in the tax return. However, the reality is different: For foreign investors, the reclaim is often not possible or only partially possible. For Swiss institutional investors (e.g. our pension funds), the reclaim is administratively burdensome and sometimes takes several years. For these reasons, Swiss bonds are less attractive than foreign bonds without withholding tax. Investors therefore prefer to buy foreign bonds. Conversely, this means for companies that we often do not find sufficient investors in Switzerland. So, especially for larger sums, we have to issue the bonds abroad.”

Why is this a problem?
“I am now part of the third generation of tax chiefs who are annoyed by this tax. Issuing bonds abroad requires a financing company and corresponding jobs abroad. This is not ideal for two reasons:

  1. Financing companies abroad make less sense from an organizational point of view. The offices abroad work closely with the tax and accounting departments at the headquarters in Switzerland. Accordingly, it would make more sense for these to be in Switzerland. This would also be interesting for Switzerland, because these are highly qualified jobs
  2. The companies abroad have to be maintained and tie up resources. That means organizing board meetings, preparing balance sheets and income statements, having these audited by auditors, submitting reports to the commercial registry office, and so on. That all costs money
“I’m now part of the third generation of tax bosses who are annoyed by this tax.”

There is also the fact that funds from foreign bonds may only be used to finance innovation or growth in Switzerland to a limited extent. The withholding tax thus makes it more difficult to finance investments in Switzerland. In summary: Large Swiss companies would generally prefer to issue their bonds in Switzerland, but the withholding tax currently makes this impossible.”

What would be the consequences of adopting the reform on the corporate side?
Without withholding tax, Swiss bonds become attractive to foreign investors. This will allow multinational companies to issue more bonds in Switzerland. As a result, jobs in financing companies can be brought back to Switzerland. In addition, costs are saved because the foreign companies do not have to be maintained. These funds can be invested more sensibly. In addition, the entire business related to the issuance of bonds comes back to Switzerland. This includes assignments for consultants, lawyers, trustees and auditors, as well as increased cooperation with Swiss banks. Theexact scope of these services depends on the amount of bonds issued – but we are talking here about orders in the millions per bond issued.”

The reform very purposefully removes an unnecessary obstacle and makes it easier for companies to grow in Switzerland. That is why SwissHoldings is advocating a YES vote for the update of the withholding tax

Further information on the withholding tax can be found in the SwissHoldings dossier withholding tax reform

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