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Der Rettungsschirm für die Strombranche ist aufgespannt

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.

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Reform of withholding tax and stamp duty

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Homburger acted as counsel to Zürcher Kantonalbank as mandated lead arranger, agent, security agent and original lender as well as Credit Suisse (Switzerland) Ltd. and Migros Bank AG as mandated lead arrangers and original lenders in connection with the financing of the acquisition of Norline AG by private equity firm Argos Wityu. Norline AG is a leading provider of outsourcing services in the heating, ventilation, air conditioning and plumbing sector in Switzerland.
Homburger AG acted as counsel to Zürcher Kantonalbank, Credit Suisse (Switzerland) Ltd. and Migros Bank AG with regard to all Swiss legal aspects of the financing transaction.
The Homburger team was led by partner Jürg Frick (Financing and Investment Products) and included associates Stefan Bindschedler und Nathalie Scherrer (both Financing and Investment Products). Tax advice was rendered by partner Stefan Oesterhelt (Tax).

Homburger advised a syndicate of banks in connection with the financing of the acquisition of Norline AG

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Roche

On February 27, 2023, Roche Finance Europe B.V. issued EUR 1.25 bn Bonds guaranteed by Roche Holding Ltd.
Banco Santander S.A., Barclays Bank PLC and Deutsche Bank Aktiengesellschaft acted as joint lead managers. The bonds will be listed on the SIX Swiss Exchange and have been admitted to trading on the Open Market (Freiverkehr) of the Frankfurt Stock Exchange.
The transaction consists of a EUR 750 m tranche due August 2029 and a EUR 500 m tranche due February 2035.
The documentation is governed by Swiss law.
Homburger acted as counsel to Roche Holding Ltd. The Homburger team consisted of Jürg Frick (Financing and Investment Products), Eduard De Zordi and Daniel Hulmann (both Capital Markets).

Homburger advised Roche Holding Ltd on the issuance of EUR 1.25 bn Bonds

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Der Rettungsschirm für die Strombranche ist aufgespannt

No to reform of withholding tax and transfer stamp duty

Reform of withholding tax and stamp duty

Homburger advised a syndicate of banks in connection with the financing of the acquisition of Norline AG

Homburger top ranked in Chambers Europe Guide 2023

Homburger advised Roche Holding Ltd on the issuance of EUR 1.25 bn Bonds

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