Federal Council initiates consultation on STAF regulations concerning the deduction of interest on capital and foreign withholding taxes

The consultation documents contain the following regulations for the implementation of STAF:

• Tax deduction regulation on the self-financing of legal persons (new)
• Ordinance on the Crediting of Foreign Withholding Taxes (previously Ordinance on the Flat-rate Tax Credit)
• Regulation 1 of the FDF on the offsetting of foreign withholding taxes (previously Regulation 1 of the FDF on the flat-rate tax credit)

Tax deduction regulation on the self-financing of legal persons

The STAF allows those cantons whose cantonal capital has an effective tax burden at federal, cantonal and municipal levels of min. 18.03% is to introduce a deduction for self-financing (NID). Imputed interest on the security equity is deductible. The regulation should regulate the details of the NID. It provides, in particular, the following:

• The collateral equity is calculated as the difference between the total equity and the core equity capital, which is calculated using equity capitalization rates. The capital adequacy rates are in principle, and the minimum equity capital increased by 25 percentage points, derived from KS ESTV No. 6, Hidden Equity. In the calculation, average values are used (start and end of the tax period).

• For certain assets in accordance with Art. 25abis Section 3 nStHG, the NID is excluded, and a capital adequacy rate of 100% is therefore foreseen.
• The portion of the collateral equity attributable to claims of any kind with regard to related parties is equal to the share of the average profit tax value of these claims on the average profit tax value of the total assets. The average profit tax values of the assets are weighted by the difference between 100 percent and the capital backing rates. Concerning claims of all kinds against related parties, a third-party-compliant interest rate is deductible, whereas, with regard to the remaining assets, the yield rate of ten-year federal bonds is deductible.

Regulation on the offsetting of foreign withholding taxes

With the STAF, it is now also possible for business premises to apply for crediting of non-recoverable foreign withholding taxes, which necessitates an adjustment of the (previous) regulation on the flat-rate tax credit. The Federal Council takes this opportunity to make further adjustments to the tax credit rules. The draft provides as follows:

• The distribution of the tax credit amount to the federal government and cantons/municipalities should no longer be flat-rate but should be effective.
• In the case of partial taxation, according to the case law of the Federal Supreme Court, no reduction of the tax credit amount will be made.
• Clarifications in the calculation of the maximum amount for the tax credit in respect of the deductions for expenses (interest on debt and other expenses). It also governs the calculation of the maximum amount of Privileged Taxed Income under the Patent Box, as well as additional deductions for R & D and NID.
• Swiss permanent establishments of foreign companies may claim tax credit provided that (1) there is one DTC between the source State and Switzerland and (2) between the source State and the country of residence of the enterprise and (3) between Switzerland and the country of residence of the enterprise.If the two DBAs with the source country for the non-recoverable taxes use different tax rates, only the lower of the two amounts can be claimed.

Regulation 1 of the FDF on the offsetting of foreign withholding taxes

The regulation is essentially editorially adapted to the changes to the main regulation with regard to the specification of the calculation of the maximum amount.

Assuming that the STAF is adopted during the referendum on May 19, 2019, the regulations should enter into law on January 1, 2020. If the original is rejected, the drafts will become obsolete.

The consultation period lasts until July 17, 2019. The consultation documents are available here.

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