18 June 2019

Subcommission publishes key figures of a paying agent interest tax

The sub-commission appointed in November 2018 (available only in German) by the Commission for Economic Affairs and Taxes of the National Council (WAK-N) has published key figures for a reform of the Swiss withholding tax on interest. Even though the entire commission agreed on the publication (available only in German) of the key figures, it is not binding for her.

Paying agent tax on domestic and foreign interest income but no reporting procedure

The key figures would convert the Swiss withholding tax on interest into a paying agent's tax applicable to Swiss individuals. Swiss legal entities, collective investment schemes and foreign investors would be exempt from any Swiss withholding tax on interest. The tax rate of 35% as well as the refund procedure would remain. In particular, there is no provision for relief at the paying agent or for a reporting procedure (instead of the tax).

The sub-commission proposes a significant extension with regard to the scope of income: Foreign interest income would also be subject to Swiss paying agent's tax.

Collective investment schemes and structured products

The treatment of domestic and foreign interest income within indirect investments (collective capital investments and structured products) is not yet clear. The key figures stipulate that these should be in-scope "as far as possible". A gap could arise here in particular if foreign collective investment schemes are exempt as "foreign investors". Swiss individuals holding fund units could receive these interest payments (indirectly) without paying agent's tax.

Possibility of outsourcing

The subcommittee also proposes the possibility of outsourcing. Outsourcing of technical processing is already possible under current law. Outsourcing therefore presumably refers to the transfer of obligations to an upstream paying agent, as is possible, for example, in the American QI system via the so-called primary/secondary NRA withholding responsibility. This outsourcing could make a valuable contribution to reducing costs for smaller institutions.

Liability of the Paying Agent

The paying agent should be liable for the Swiss withholding tax (in addition to any default interest) and in return would receive appropriate compensation and a right of reclaim against his customer. The proposed limitation of criminal liability to intent would be advantageous for the paying agents.

Swiss Dividends within structured products

The subcommittee also proposes an amendment concerning Swiss dividends. The manufactured and passed-on payments, which frequently occur in structured products, are to be subject to Swiss withholding tax on a legal basis. These payments are intended to put the investor on an equal footing with regard to the dividends he usually receives from a direct investment. It is therefore justified to treat these payments under Swiss withholding tax in the same way.

Timetable of the subcommittee

The subcommittee expects to have drafted legal provisions by mid-September 2019, which can then be discussed and submitted to the full commission.

The tax team will be happy to answer any questions and provide further information.

Author: Marc-Antoine Bree

Topics: Capital MarketsTaxWithholding taxPaying agent taxStructured productsAutomatic exchange of information


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