Issues of domestic bonds continue to be subject to withholding tax. Thus, the transfer restrictions in syndicated loan agreements («10 and 20 non-bank rules») as well as restrictions on the use of funds of bonds issued abroad by Swiss groups remain relevant.
Trading in domestic bonds also remains subject to the turnover tax of up to 0.15%. The same applies to the purchase and sale of domestic and foreign qualifying participations.

No to reform of withholding tax and transfer stamp duty

Introduction
With the aim to strengthen the Swiss capital market, on December 17, 2021, the Swiss Parliament adopted a withholding tax and stamp duties reform. The core of the reform is the abolition of the withholding tax on interest payments in relation to newly issued bonds and the abolition of the transfer stamp duty on domestic bonds. In addition, the transfer stamp duty on the sale of qualified participations will be abolished and a legal basis will be created for the payment of withholding tax on manufactured payments. If no referendum is held against it, the reform is expected to become effective as of January 1, 2023.
Abolition of withholding tax on domestic bonds
In future, interest on domestic bonds will no longer be subject to withholding tax. Consequently, it will no longer be necessary for domestic groups to issue their bonds through foreign subsidiaries. The usual restrictions on the use of proceeds of bonds and loan agreements guaranteed or secured by a domestic company will no longer be needed.
Transitional provision
The withholding tax will only be abolished on new bond issues. This is clarified in a transitional provision introduced by the Swiss Parliament. Nothing will change for bonds that are already subject to withholding tax at the time of entry into force. These will remain subject to withholding tax.
However, this only applies to bonds that were formally issued by a domestic issuer and are subject to withholding tax. Foreign bonds that have already been issued can therefore be migrated to Switzerland from the date on which the amendment enters into force without this having any withholding tax consequences. The restrictions on the use of proceeds are also no longer relevant once the amendment enters into force.
Effects on credit agreements
The usual transfer restrictions in credit agreements will also no longer be necessary. Syndication of credit agreements will be possible in the future without corresponding restrictions. The «10 and 20 non-bank rules» will be abolished without replacement.
The only exception is if a credit agreement is secured by domestic real estate, as the withholding tax on such interest is maintained. If a credit agreement is secured by domestic real estate, the permissible transfers should therefore continue to be limited to so-called «treaty lenders», i.e. lenders who are resident in a country with which Switzerland has concluded a double taxation agreement that assigns the right to tax interest exclusively to the country of residence.
Effects on structured products
Today, structured products with an interest component are often issued via foreign companies, as the interest component is otherwise subject to withholding tax. This applies, for example, to the very widely spread reverse convertibles. In future, it will be possible to issue such products from Switzerland without withholding tax consequences. However, certain structured products similar to investment funds and products where dividends are passed on to investors will continue to be subject to withholding tax.
Collective investment schemes
Income from domestic collective investment schemes continues to be subject to withholding tax. As part of the parliamentary consultations, however, an exception was created for interest received by collective investment schemes. In future, such interest may be distributed by collective investment schemes free of withholding tax. On the other hand, the partially demanded exemption for all foreign income of collective investment schemes  was rejected during the consultations. As a result, Switzerland will continue to have a difficult time as a fund production location compared to its foreign competitors.
Interest on customer deposits with domestic banks and insurance companies
Interest on client deposits with domestic banks and insurance companies will continue to be subject to withholding tax. In future, however, only customer deposits of domestic individuals will be subject to withholding tax. Customer deposits of foreign persons who are subject to the AEOI will correctly no longer be subject to withholding tax. In addition, customer deposits of legal entities will no longer be subject to withholding tax. Today, the definition of the term «customer deposit» is extraordinarily broadly. In future, however, only customer deposits with regulated banks and insurance companies will be subject to withholding tax. The so-called «100 non-banks rule» is thus outdated.
Withholding tax on manufactured payments
In its ruling of 21 November 2017, the Federal Supreme Court decided that the levying of withholding tax on manufactured payments (in particular manufactured dividends) did not have a sufficient legal basis. This legal loophole will now be remedied and a corresponding legal basis created. Essentially, the current practice is to be continued unchanged.
Pragmatism article for the withholding tax
As part of the parliamentary consultations, a pragmatism article was also introduced for withholding tax. No withholding tax shall be levied and no refund shall be refused, respectively, as a result of formal defects, if it is apparent or the taxpayer can prove that no tax loss has arisen as a result of non-compliance with formal requirements. The Swiss Parliament&#8217;s source of inspiration was the VAT Act, where a similar article was introduced about four years ago. In contrast to the VAT Act, the practical implications are likely to be minor in the present case.
Transfer stamp duty on domestic bonds
The 0.15% transfer stamp duty on secondary market transactions involving domestic bonds will be abolished. However, the 0.3% transfer stamp duty on secondary market transactions involving foreign bonds will be retained if a domestic securities dealer acts as a party or an intermediary.
Transfer stamp duty on the sale of participations
The purchase and sale of participations in domestic or foreign corporations is currently subject to transfer stamp duty of 0.15% or 0.3%, respectively, if a domestic securities dealer acts as a party or an intermediary. A domestic holding company regularly qualifies as a securities dealer. Now, the brokerage as well as the purchase and sale of participations of 10% or more is in principle no longer subject to transfer stamp duty if the participation qualifies as a fixed asset within the meaning of Art. 960d CO. This is a considerable relief for the M&amp;A activities of domestic groups.
Transfer stamp duty for money market funds
While trading in domestic and foreign money market securities (i.e. bonds with a maturity of less than one year) is already exempt from transfer stamp duty today, the issue of foreign money market funds is in principle subject to transfer stamp duty. Now, the issuance of units of foreign money market funds, which limit their investments in securities to those that have a remaining term to maturity of no more than 397 days, will be exempt from transfer stamp duty. This will make Switzerland a more attractive location for treasury companies.
Entry into force on January 1, 2023
Unless a referendum is held against the bill, the abolition of withholding tax on bond interest will come into force on January 1, 2023. Regarding the other provisions, Swiss Parliament has refrained from imposing a binding date on the Federal Council for the entry into force.

RZ_Preview_VST_SB_02

Reform of withholding tax and stamp duty

Interest on bonds issued by Swiss companies is currently subject to a withholding tax of 35%. Such bonds cannot be placed on the international capital market. Exceptions currently exist only for regulatory instruments of systemically important banks (AT1 bonds and TLAC). Therefore, bonds of Swiss groups are usually issued via foreign group companies. The proposed amendment to the law will make it possible to issue bonds from Switzerland without withholding tax consequences.
Withholding tax on bonds shall be abolished completely. Thus, not only capital market issues will benefit from the planned reform, but also credit financing, since the restrictions on syndication (10/20 non-bank rules) will no longer be necessary.
It is envisaged that from the entry into force of the amendment, not only new issues will benefit from the exemption, but also bonds already issued with reference to future interest due dates.
However, the withholding tax on interest from bank deposits will be retained. In addition, bonds secured by domestic real estate are still subject to a withholding tax of 13% to 33%.
Income from domestic investment funds also continues to be subject to withholding tax of 35%.
The turnover stamp duty of 0.15%, which is levied on secondary market transactions with domestic bonds, is also to be abolished. However, the turnover stamp duty of 0.3% on bonds of foreign issuers will be retained. Domestic bonds will therefore enjoy a tax privilege in the future.

Abolition of withholding tax on bond interest 

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Vectivio

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On May 22, 2023, VectivBio Holding AG (Nasdaq: VECT), Basel (Switzerland), a clinical-stage biopharmaceutical company pioneering novel transformational treatments for severe rare gastrointestinal conditions, and Ironwood Pharmaceuticals, Inc. (Nasdaq: IRWD), a GI-focused healthcare company, announced that they had entered into an agreement for Ironwood to launch an all-cash public tender offer to acquire all outstanding shares in VectivBio for USD 17 per share, with an estimated aggregate consideration of approximately USD 1 bn, net of VectivBio cash and debt. The acquisition price represents a premium of 80% relative to the volume-weighted average share price over the previous 90 trading days. The offer is subject to customary conditions and expected to close in mid-2023. VectivBio&#8217;s board of directors unanimously recommends the offer. Orbimed, Forbion and Versant Ventures, and VectivBio&#8217;s directors and officers jointly representing 28.6% of VectivBio&#8217;s shareholdings, entered into tender and support agreements in connection with, and in support of, the offer.
Homburger AG serves as legal and tax advisor to VectivBio on the transaction. The Homburger team includes Andreas Müller, Margrit Marti, Oliver Kneubühl, Francesco Bernasconi, Oliver Dalla Palma, Daniel Wenzinger and Carolina Rodriguez (all Corporate / M&amp;A), Lorenzo Togni (Capital Markets), Stefan Oesterhelt, Philippe Gobet and Kevin Müller (all Tax), Stefan Bindschedler (Financing and Investment Products), Luca Dal Molin (IP / IT; Data Protection), Angela Casey (Employment and Executive Compensation), and Richard Stäuber and Christoph Grüninger (Competition, Regulatory).

Homburger advises VectivBio with respect to the announced public cash tender offer from Ironwood Pharmaceuticals

Tiedemann Group

On January 3, 2023, Tiedemann Group, Alvarium Investments Limited and special purpose acquisition company Cartesian Growth Corporation (NASDAQ: GLBL) announced that they have completed their previously announced business combination. The combined company now operates as Alvarium Tiedemann Holdings, Inc. (NASDAQ: ALTI).
AlTi is a leading independent global wealth and asset manager providing entrepreneurs, multi-generational families, institutions, and emerging next-generation leaders with fiduciary capabilities as well as alternative investment strategies and advisory services. The firm currently manages or advises on approximately USD 60 bn in combined assets and has an expansive network with over 400 professionals across four continents.
Homburger advised Tiedemann Group and its Switzerland-based international operations, Tiedemann Constantia, on all Swiss legal and tax aspects of the transaction. The Homburger team comprised Andreas Müller, Anna Peter and Oriana Schöni (all Corporate / M&amp;A) and Reto Heuberger, Philippe Gobet and Philippe Weber (all Tax).

Homburger advised Tiedemann Group on its Business Combination with Alvarium Investments and Cartesian Growth Corporation

On October 11, 2022, 21Shares AG (21Shares), the world&#8217;s largest issuer of cryptocurrency exchange traded products, launched a first-of-its-kind public cash tender offer for all outstanding exchange traded products of the series 21Shares Terra Classic ETP issued by 21Shares under its Exchange Traded Products Programme.
The tender offer was available for two tender periods, the primary offer period ending on November 11, 2022 and the secondary tender offer period ending on December 2, 2022.
Homburger advised 21Shares AG on all aspects of the transaction. The Homburger team was led by Benjamin Leisinger and Vanessa Isler (both Capital Markets) and included Stefan Oesterhelt (Tax) as well as Philippe Gobet (Tax) and Sofiya Shavlak (Capital Markets).

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Homburger advises VectivBio with respect to the announced public cash tender offer from Ironwood Pharmaceuticals

Homburger advised Tiedemann Group on its Business Combination with Alvarium Investments and Cartesian Growth Corporation

Homburger advised 21Shares on cash tender offer for exchange traded products

No to reform of withholding tax and transfer stamp duty

Reform of withholding tax and stamp duty

Abolition of withholding tax on bond interest

Chapter 10: Accounting and Auditing

Reform of withholding tax and transfer stamp duty

Swiss Withholding Tax Reform

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Homburger advises VectivBio with respect to the announced public cash tender offer from Ironwood Pharmaceuticals

Homburger advised Tiedemann Group on its Business Combination with Alvarium Investments and Cartesian Growth Corporation

Homburger advised 21Shares on cash tender offer for exchange traded products

No to reform of withholding tax and transfer stamp duty

Reform of withholding tax and stamp duty

Abolition of withholding tax on bond interest

Chapter 10: Accounting and Auditing

Reform of withholding tax and transfer stamp duty

Swiss Withholding Tax Reform

Join the Team

Philippe Gobet

Career

Languages

Teams

Philippe
Gobet