By Elisa Kaminsky, BaseFirma, Miami
Switzerland tax authorities recently issued new Circular No. 3 and No. 4 announcing updated safe harbor interest rates for intercompany loans.
Safe harbor rules
Switzerland established new safe harbor interest rates for controlled loans. The rates and other relevant guidance on intragroup loans are updated annually by the tax authority.
The circulars include guidance of applicable interest rates for whether a Swiss company acts as creditor or debtor of the loan, and it takes into consideration if the loans were entered in local or foreign currency and what type of debt it is incurred.
The updated safe harbor rates established by the Swiss tax authority for 2020 include the minimum rates for intercompany loans granted and the maximum rates for loans received.
When the Swiss company applies the safe harbor interest rates to analyze its intercompany loans, the tax authority considers the transactions to be at arm’s length without requesting additional analyses.
Loans entered in Swiss Francs – Swiss company as a lender
In the case the Swiss company acts as the lender, the safe harbor rate is 0.25% for loans financed through equity funds.
For debt-financed loans, the minimum interest rate should include a spread of 0.5% on loans up to CHF 10 million (approximately USD 10.23 million) and a spread of 0.25% on loans above that amount.
Loans entered in Swiss Francs – Swiss company as borrower
In the case the Swiss company acts as the borrower, then the maximum applicable rates on real estate loans are between 1.0% and 2.25% (depending on loan type and level of debt financing).
On operational loans received by a Swiss trading or manufacturing company, maximum rates are between 3.0% for loans up to CHF 1 million (approximately USD 1.02 million) and 1.0% on the excess.
Lastly, on operational loans received by a Swiss holding company, rates are 2.5% for loans up to CHF 1 million (approximately USD 1.02 million) and 0.75% on the excess.
Loans entered in foreign currency
These safe harbor interest rates are applicable when the Swiss company acts as either the lender or the borrower.
The interest rate for equity-financed loans in Euros is 0.5% (previously 0.75%) and for loans in US dollars is 2.25% (previously 3%).
In the case loans are financed through debt, then the applicable interest should include a spread of 0.5% (previously 0.75%) for loans denominated in Euros or 2.25% (previously 3%) for loans in US dollars.
Notice that higher interest rates can be applied when the Swiss entity acts as the borrower and the rates follow the arm’s length principle.
–Elisa Kaminsky is a transfer pricing manager, BaseFirma, Miami
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