Update on withholding tax and stamp duties (2024)

Case 1: Stamp duty; emission tax for refurbishments

1. facts of the case

X AG, which was founded in 2010 and is domiciled and managed in Canton B, has a fully paid-up share capital of CHF 20 million, which is divided into 20,000 fully paid-up registered shares with a nominal value of CHF 1,000 each. All shares in X AG are owned by Mr. A, who is also subject to unlimited tax liability in Canton B.

From the 2014 financial year onwards, X AG's performance deteriorated steadily, with the result that its loss has grown constantly over the years. Interim financial statements for X AG were therefore prepared as at November 1, 2018. These show a loss carried forward totaling CHF 12 million. Mr. A, in his capacity as a shareholder of X AG, makes a cash contribution to X AG in the amount of CHF 11 million on this date, whereby X AG reports this contribution in full in its open capital contribution reserves. A corresponding report is also made to the Swiss Federal Tax Administration (FTA) using form 170. Due to the circumstances (restructuring), X AG refrains from charging the issue tax on Mr. A's cash contribution. As part of the reorganization, X AG also refrains from derecognizing the loss carryforward against the corresponding open capital contribution reserves. A corresponding derecognition will only take place in the run-up to the transfer of the company to an independent third party at the beginning of 2022.

Questions

• What are the general requirements for an issue tax to be owed?
• Can the exemption provision of Art. 6 para. 1 let. k StG be invoked in this case?
• Is a waiver pursuant to Art. 12 StG possible in the present case?

Case 2: Default interest - Interest?

1. facts of the case

The Muster couple holds a small group of companies, the traditional family business, via a family holding company and also directly owns Muster AG, which runs a successful business that is completely independent and separate from the family business. The eldest daughter buys all the shares in Muster AG from her parents via an acquisition holding company at a market value of CHF 15,000,000, whereby the acquisition holding company pays CHF 3,000,000, corresponding to its equity, and CHF 12,000,000 is left as a loan by the parents. The conditions are as follows:

• Unsecured
• Interest-free
• Monthly amortization of CHF 100,000, the debtor can make higher amortizations at any time, including the entire repayment of the outstanding loan amount.
• Interest on arrears of 4.0 percent is owed immediately on delayed amortization payments from the due date until payment is made without a reminder.
• As soon as an amortization payment is outstanding, the creditors can terminate the entire remaining loan immediately.

The loan will be repaid up to CHF 4,500,000 by March 2020 in accordance with these conditions. Due to Covid, no amortization payments will be made between April 2020 and the end of 2022 because Muster AG's profits will collapse and it will not be able to earn the dividends required for the amortization payments; the outstanding amount as at 31 December 2022 is therefore CHF 3,300,000. Default interest will be charged on this amount in accordance with the agreement, resulting in the following default interest payments by Muster AG to the creditors:

The amortization payments will be resumed from January 2023. The difference between CHF 4,500,000 and CHF 3,300,000, i.e. CHF 1,200,000, was and is always - like the loan itself - non-interest-bearing.

On the occasion of an audit up to and including 2022, the FTA stated that

• There are no third-party relationships.
• The FTA therefore assumes the interest rates according to the interest fact sheets 2020 - 2022, i.e. it recognizes up to CHF 1,000,000 2.5 percent and from CHF 1,000,000 0.75 percent
• The FTA invoice results in the following monetary benefits for Muster AG:

Questions

• Does the loan agreement correspond to third-party relationships or not?
• Is the interest offset correct or what are the counter-arguments?

Case 3: Group financing

1. facts of the case

The Muster Group is an internationally active group; the domestic Muster Holding AG is the parent company and the domestic Muster AG is the operational "control center" of the group. The US market is centered under the US subholding company AG. In addition, the Muster Group has central business units in Germany and the UK, which are bundled under D-Subholding AG and UK-Subholding AG.

The Muster Group is planning new overall financing as follows:

• Financing 1:
  • As the issuer, Muster Holding AG issues an unsecured bond of CHF 250,000,000.
  • The funds raised are made available to the domestic subsidiary Muster AG with a spread on a loan basis, possibly also for a small amount in cash pooling.
• Financing 2:
  • US-Subholding AG is the issuer of an unsecured bond of USD 500,000,000.
  • Muster Holding AG guarantees this bond.
  • The funds are passed on by the US sub-holding company exclusively to its US subsidiaries in the form of loans.
• Financing 3:
  • A newly established Dutch company Muster Finanz AG, a subsidiary of Muster AG, plans to issue a bond of up to EUR 1,200,000,000 as issuer.
  • Muster Holding AG grants a guarantee against payment in favor of Muster Finanz AG.
  • Muster Finanz AG will pass on the EUR 1,200,000,000 borrowed to Muster AG in the form of a loan.
  • SAG will pass on the funds received from Muster Finanz AG to D-Subholding AG and UK-Subholding AG and possibly to other foreign Group companies in the form of loans.
  • Around EUR 200,000,000 will be used by Muster Finanz AG.

The total equity of the foreign group companies of the Muster Group amounts to around CHF 250,000,000.

Questions

• What should I bear in mind with regard to Muster Finanz AG?
• Are there any withholding tax consequences in relation to financing 1?
• Are there any withholding tax consequences in relation to financing 2?
• Are there any withholding tax consequences in relation to financing 3?
• What needs to be considered with regard to the interest rate structure?
• What needs to be considered with regard to the settlement of the guarantee?
• Does it matter whether Muster Finanz AG is a subsidiary of Muster Holding AG instead of Muster AG?
• Are there any stamp delivery sequences?

Case 4: Refund of withholding tax by an FL foundation

1. facts of the case

The Tue-Gutes-Stiftung was established in 2018 in the Principality of Liechtenstein (hereinafter referred to as "FL"). The founder, Mrs. Grosszügig, was subject to unlimited tax liability in Switzerland at the time of foundation, was 81 years old and designated herself and her children as beneficiaries. Mrs. Grosszügig and her - adult - children have lived in Germany since 2019.

In 2022, the Tue-Gutes-Stiftung submitted the following refund applications with Form. 78 submitted the following refund applications to the FTA for the withholding tax deducted on dividends from its share portfolio:

• Due 2019 CHF 200,000 Withholding tax CHF 40,000

• Due 2020 CHF 300,000 Withholding tax CHF 60,000
• Due 2021 CHF 200,000 Withholding tax CHF 40,000

In 2023, the FTA rejected these refund applications on the following grounds:

• In the case of foreign foundations, the specific circumstances are used to determine to whom the foundation's assets and income are attributable for tax purposes.
• The decisive factor for attribution is who can actually dispose of the foundation assets based on the specific circumstances of the individual case.
• According to the submitted articles of association, the founder has the power to issue and amend regulations.
• The founder therefore has a right to issue instructions in the sense of a certain influence on the foundation, so that the foundation assets and income can be attributed to the founder for tax purposes.
• Due to the attribution to the founder living in Germany, a refund based on the double taxation agreement between Switzerland and FL (hereinafter referred to as "DBA-FL") is not possible.

Questions

• What is the significance of the FTA's 2023 rejection letter?
• What are the refund requirements?
• Does it matter if the founder was incapacitated at the end of 2020 due to senile dementia?

Case 5: Audit - Cash pooling

1. facts of the case

Vertriebs AG is part of an international group. In the past, it has retained profits and has reserves subject to withholding tax in excess of CHF 30,000 thousand, which are offset by identical liquidity. Vertriebs AG has invested these liquid funds in the Group's own cash pool with the cash pool leader based in EU country 1. The interest rate has been 0.00% since 2017 until 2022. The average cash pool costs, which are passed on to Vertriebs AG, amount to CHF 100,000 per year as cash pool leader remuneration.

This issue will be addressed during an audit by the FTA for the years 2018 - 2022.

Questions

• Is there a pecuniary benefit and - if so - how is it calculated?
• What changes if the cash pool leader is a domestic company and the parent company of Vertriebs AG?