Switzerland advances withholding tax reform

By Francesca Amaddeo, Lecturer-Researcher, Tax Law Competence Centre (SUPSI), Manno, Switzerland

In a move designed to increase Swiss attractiveness for financing activities, the Swiss Federal Council on April 15 proposed to exempt Swiss interest income from Federal withholding tax.

Currently, Switzerland applies a 35% withholding tax on passive income (i.e., interests and dividends) and lottery winnings. This can be viewed as an obstacle for economic policy, especially regarding interest-bearing investments.

The withholding tax regime is intended to fight against tax evasion and tax avoidance, acting as a fail-safe in the national tax framework. For Swiss residents, both individuals and corporations, the withholding tax is totally refunded. However, for non-residents, it becomes a final tax.

Last year, the Federal Council identified some potential elements for reform. One such element was an exemption for domestic legal entities and foreign investors from withholding tax on Swiss interest income.

Another identified element for reform was to strengthen the safeguarding purpose of the withholding tax by imposing a withholding tax on foreign interest income of individuals in Switzerland, thereby reducing a significant gap and making an effective contribution to the fight against tax evasion in Switzerland.

Other reform includes equalizing the treatment of direct and indirect investments to strengthen Switzerland as a fund location and abolishing the transfer stamp tax on domestic bonds.

As the successful end of the procedural exercise, the Federal Council adopted a dispatch with proposed reforms. The changes proposed would exempt Swiss interest income from withholding tax.

Economic estimates of the impact of the changes are encouraging. The changes are expected to increase corporate issuance of bonds (and debentures) in-house rather than in foreign countries (usually with no withholding taxes).

Even if, in the short-term, the Swiss Confederation would lose USD 1 billion (CHF 1 billion), the amendment presents an excellent cost-benefit ratio in terms of value creation and jobs.

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Francesca Amaddeo

Lecturer-researcher at Tax Law Competence Centre, Department of Business Economics, Health and Social Care, University of Applied Science and Arts of Southern Switzerland (SUPSI)

Dr. Francesca Amaddeo, PhD in European law and national legal systems, is an Italian lawyer that works as Lecturer-researcher at the Tax Law Competence Centre, Department of Business Economics, Health and Social Care, University of Applied Science and Arts of Southern Switzerland (SUPSI).

Latest posts by Francesca Amaddeo (see all)

• International taxation: two-pillar plan and the OECD mainstream - February 28, 2022
• Swiss federal act on implementation of international tax agreements: ready for January 2022 - November 23, 2021
• EU Commission seeks to ease withholding tax mechanism on cross-border investments - October 26, 2021
• CJEU to review German transfer pricing obligation: do national tax rules affect EU freedoms? - October 11, 2021
• Switzerland advances withholding tax reform - May 17, 2021

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