Withholding tax and financing issues - current practice
Workshop on the occasion of the ISIS) seminar on 21 September 2020 entitled "Practical cases on withholding tax and outlook on current developments".
1. foreign bond with guarantee of the domestic parent company
1.1 Facts of the case
The Swiss-based X Group, through a Luxembourg-based financial subsidiary, issues a bond in the amount of CHF 500 million, which is guaranteed by the top company (X).
The funds are on-lent to a domestic treasury company via an i/c loan of CHF 500 million and are transferred to the Group by means of i/c loans.
1.2 The question
How many funds must be transferred to foreign companies via i/c loans?
How would the case be if CHF 900 million were raised via the bond?
1.3 Variant 1: Foreign group
The Swiss X Group is subsequently acquired by the foreign Y Group. What consequences does this have on the equity test according to the Practice Statement of 5 February 2019?
1.4 Variant 2
The acquisition will be financed by, among other things, a bond, which will be taken up by the acquisition company based in the Netherlands. The bond is guaranteed by SwissCo and its domestic and foreign subsidiaries.
What does this mean with regard to the permissible use of funds in Germany?
What are the withholding tax consequences of a call on the guarantee to SwissCo if (i) the entire bond of CHF 900 million is guaranteed and (ii) the distributable funds of SwissCo at the time of the call amount to CHF 400 million?
What are the withholding tax consequences of a claim against (i) the domestic subsidiary of SwissCo (distributable funds: CHF 100 million) or (ii) the Luxembourg-based subsidiary of SwissCo?
2 Financing via securitisation platform
2.1 The facts of the case
A domestic company (SwissCo) that does not have significant foreign subsidiaries would like to be able to raise a bond and place it on the international capital market. It therefore wants to issue a bond without withholding tax on the coupons.
SwissCo is therefore considering an issue via a foreign securitisation platform (e.g. ELM BV based in the Netherlands or Thalos Investment Platform S.A. based in Luxembourg).
How must the structures be designed so that no withholding tax is due?
3 Financing through ICO
3.1 Facts of the case
The Swiss resident X. AG would like to raise funds through an ICO. The tokens issued by it entitle the token holders to a total of 10% of the turnover of X. AG, which generates this revenue from the sale of a certain software application.
3.2 The question
How are the payments to the token holders to be treated for withholding tax purposes?
3.3 Variant 1
Now, the token holders are in case of liquidation of the X. AG is liquidated, the token holders are now entitled to receive back the issue price of the tokens.
Does this change anything about the withholding tax treatment?
3.4 Variant 2
The token holders are now entitled to receive the same amount as is distributed to shareholders as a dividend. (In total, there are twice as many shares as tokens and these are not held by a majority of shareholders).
4 Waiver of claim against sister company
4.1 Facts of the case
The domestic A AG. has two subsidiaries, the domestic B. AG and the Italian-based C. SpA. B has a receivable from C in the amount of CHF 20 million. In order to restructure C's balance sheet, B waives its receivable from C as of 1 September 2021.
C shows an under-balance sheet as at 31 December 2020 in the amount of CHF 15 million, which is covered by hidden reserves in the amount of CHF 7 million. (i.e. a true under-balance sheet of CHF 8 million).
What are the withholding tax consequences of B's debt waiver?
C is now not a direct subsidiary of A, but is held via the intermediate company D. BV, which is based in the Netherlands. Does this change anything in the withholding tax assessment?