Tax aspects of financing

Case 1: Private placement

1. facts of the case

The domestic company X. AG raises debt financing (private placement) in March 2024. The private placement has a Tranche A (CHF 10 million; 4% p.a.) and a Tranche B (EUR 10 million; 6% p.a.). Both Tranche A and Tranche B each have 10 non-bank creditors.

X. AG has no other liabilities denominated in a fixed amount for more than one year.

X. AG still has the following liabilities:

• A liability to a supplier from an outstanding invoice for CHF 4 million, which bears interest at 5% p.a. from the due date.
• A liability to a non-bank that bears interest at 3% p.a. during the year.
• A current account liability to a non-bank.

Question

Is the private placement a bond within the meaning of Art. 4 para. 1 lit. a of the Swiss Federal Tax Act?

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2. variant 1: Different term of tranche A and B

How would the case be assessed if tranche A and tranche B were both denominated in CHF and bore interest at 4% p.a.? However, the term of tranche B would be one month shorter than that of tranche B?

3. variant 2: Private placement as a discretionary bond issue

As in the original case.

X. AG has, however, taken out a further 4% interest-bearing private placement with 3 non-bank creditors and declared this to the FTA as a bond (and paid withholding tax on the interest).

4. variant 3: Fund as creditor

One of the 10 creditors of X. AG under Tranche A is Debt Fund I, a fund established under Luxembourg law without legal personality (special limited partnership; SCSp) with numerous (non-bank) investors.

Debt Fund I was established in 2021 and, in addition to the claim against X. AG, it also has numerous other investments.

The General Partner (GP) is Y. Sàrl. The fund management company (AIFM) is Z. Sàrl.

Does this change anything in the assessment?

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5. variant 4: Several funds as creditors with the same general partner

Now not only Debt Fund I, but also (the also pre-existing) Debt Fund II is to subscribe to Tranche A (in addition to 9 other non-bank creditors).

The GP of Debt Fund II is also Y. Sàrl.

6. variant 5: Several funds as creditors with the same AIFM

As in variant 4, but now the GP of Debt Fund II is XY Sàrl. However, like Debt Fund I, Debt Fund II has Z. Sàrl as AIFM.

7. variant 6: change of creditor before first interest payment

As in variant 5, Debt Fund II realizes the error (before the first interest payment) and sells its claim against X.AG to Debt Fund I.

8. variant 7: Joint venture company as creditor

As in the original case.

Debt Fund I and Debt Fund II establish a Luxembourg corporation (XYZ Sàrl), which subscribes to Tranche A.

9. variant 8: Sub-participation

As in the original case.

Debt Fund I now grants Debt Fund II a sub-participation in Tranche A.

Case 2: Foreign issue of a bond

1. facts of the case

The domestic X. AG issues a bond in March 2024 via its Dutch-based finance company Y. BV (equity: CHF 1 million; 5 employees) issues a bond in the amount of CHF 50 million with a term of 5 years and a coupon of 3.5% p.a. (10,000 notes of CHF 5,000 each). The bond is registered with SIX as a book-entry security.

The bond is guaranteed by X. AG.

The funds raised with the bond are forwarded with a loan to Z. AG, a domestic subsidiary of X. AG.

X. AG also has a subsidiary domiciled in Luxembourg (X. Sàrl; equity: CHF 10 million; a holding company) which in turn holds an operating subsidiary domiciled in Germany (Y. GmbH; equity: CHF 10 million).

In December 2024 (two weeks before the end of the financial year on December 31), X. AG granted Y. GmbH a loan of CHF 30 million.

Questions

• How are the interest payments under the bond to be treated?
• Are transfers of shares subject to sales tax?

2. variant 1: Short-term forwarding over the end of the year

As in the original case. 

On January 15, 2025, Y. GmbH repays the loan to Z. AG. Another loan is not granted to Y. GmbH until December 15, 2025. 

3. variant 2: Issuer without substance

As in the original case.

However, Y. BV now has no employees working in the Netherlands.

4. variant 3: Issuer as a subsidiary of an operating company

As in variant 2.

However, Y. BV is now a subsidiary of the German company Y. GmbH.

5. variant 4: Issuer as a subsidiary of a foreign holding company

As in variant 2.

However, Y. BV is now a subsidiary of the Luxembourg intermediate holding company X. Sàrl.

6. variant 5: Net use of funds in Germany greater than equity of foreign companies

As in the original case.

As at 31.12.2024, the foreign Group companies only had liabilities totaling CHF 28 million.

7. variant 6: Crossstream guarantee

As in variant 5.

Now it is not X. AG, but its subsidiary Z. AG. The guarantee of Z. AG is contractually limited to the funds of Z. AG available for distribution under commercial law at the time the guarantee is utilized. AG at the time the guarantee is called.

8. variant 7: Guarantee of the foreign group company

As in variant 6.

In addition to Z. AG now also guarantees X. Sàrl. The guarantee of X. Sàrl is not limited to the distributable funds of X. Sàrl (nor its parent company X. AG) (and there is no legal restriction under Luxembourg company law).

9. variant 8: Foreign group

As in variant 5.

X. AG is acquired by a US group in 2025. The latter acquires X. AG via a Dutch holding company. The US top holding company has equity of CHF 500 million and has other foreign group companies with a cumulative equity of CHF 2 billion.

10. variant 9: Acquisition financing of a private equity fund

X. AG is acquired in 2025 by a private equity fund via a Luxembourg acquisition company (XY. Sàrl) for CHF 200 million.

For this purpose, XY. Sàrl raises acquisition financing of CHF 100 million. (With which, among other things, the bond of Y. BV is repurchased).

XY. Sàrl has equity of CHF 1 million.

The acquisition financing is (postclosing) guaranteed and secured by X. AG guarantees and collateralizes the acquisition financing. The guarantees and collateral are contractually limited to the distributable funds of X. AG's distributable funds. In addition, XY. Sàrl also grants a pledge on the shares of X. AG shares and a collateral assignment of the receivables of XY. Sàrl's claims against X. AG (and its subsidiaries).

XY. Sàrl has no substance in Luxembourg.

11. variant 10: Issue of foreign branch office

As in the original case.

X. AG is now issuing the bond not via a subsidiary but via its Dutch branch.

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Case 3: Orphan bond / securitization

1. facts of the case

The domestic X. AG has no foreign subsidiaries. It raises funds on the capital market with a so-called orphan bond.

To this end, Luxembourg-based Y. Sàrl issues 10,000 notes in the amount of CHF 50 million with a coupon of 3.5%. The funds are transferred to X. AG with a loan.

The notes are secured by a pledge of the loan claim of Y. Sàrl against X. AG as collateral.

Y. Sàrl is held by a charitable foundation in Liechtenstein. Y. Sàrl is managed by Z. Bank.

Question

Are interest payments under the notes or the loan subject to withholding tax?

Case 4: Loan agreement with domestic guarantor

1. facts of the case

The domestic X. AG is the parent company of Y. AG and the Dutch-based finance company Z. BV.

Z. BV is the debtor under a loan agreement and forwards the funds to Y.AG. The credit agreement is guaranteed and collateralized by both X. AG and Y. AG guarantee and collateralize the loan agreement.

The net use of funds in Germany is greater than the equity of the foreign Group companies.

The loan agreement is syndicated to a maximum of 10 non-bank creditors.

Questions

• What must be done to ensure that interest payments are not subject to withholding tax?
• What applies with regard to the term "cash bond", which is relevant for the sales tax?