<iframe src="//www.googletagmanager.com/ns.html?id=GTM-5T7PGR" height="0" width="0" style="display:none;visibility:hidden">

FROM THE BLOG

Swiss Safe Harbour interest rates on intra group loans for 2019 - to ensure that interest on intra group loans does not qualify as hidden profit distribution

Posted by on 26 February 2019

Interest rates on intra group loans are a recurring topic. The Swiss Federal Tax Administration (FTA) publishes safe harbour interest rates on an annual basis in advance. Their application will usually prevent unwelcome surprises. But there is more to be considered.

Safe-Harbour-Zinssätze.jpg

Annual guidance published by the FTA

In its annually published advance guidance on intra group interest rates the FTA differentiates whether the Swiss company acts as creditor or debtor, what currency the loan was granted in and whether (real estate) security was provided. Excessive or insufficient interest rates may trigger tax consequences in particular for corporate income and withholding tax purposes (WHT).

If the safe harbour rates are met, FTA assumes that the rates are at arm's length without further proof required. Where a Swiss company however applies higher or lower interest rates, it should be able to prove that they are at arm's length.

CHF loans granted by Swiss companies

Equity-financed loans in CHF granted by a Swiss company to its shareholders or other related persons must bear a minimum interest rate of 0.25 % in 2019. Debt-financed loans must bear a minimum interest rate of the company's interest cost plus a spread of 0.5 % on loan amounts up to CHF 10m (and a spread of 0.25 % on loan amounts in excess of CHF 10m) in 2019. These minimum interest rates ensure a minimum net interest income for Swiss companies lending to affiliates.

CHF loans granted to Swiss companies

For Swiss companies that receive loans from its shareholders, affiliates or other related parties, FTA prevents undue erosion of the Swiss company‘s profit by setting maximum interest rates.

For working credits in CHF granted to a Swiss trading or manufacturing company, the maximum interest rate 2019 amounts to 3 % on amounts up to CHF 1 million and to 1 % on amounts exceeding CHF 1 million.

For loans granted to Swiss holding and asset management companies the maximum interest rate 2019 amounts to 2.5 % on amounts up to CHF 1 million and to 0.75 % on amounts exceeding CHF 1 million.

Loans secured by real estate may bear a maximum interest rate between 1 % and 2.25 %, depending on the type of property (rural/residential or commercial/industrial) and on the relation between loan amount and market value of the property. The maximal debt-financing of a property amounts to 70 % - 80 % of its market value, depending on the type of property.

Non CHF loans

Loans in currencies other than CHF are in principle subject to separate interest rates published in an own circular. Contrary to CHF loans, the interest rate is the same irrespective of whether the Swiss company acts as lender or borrower. The 2019 safe harbour interest rate for EUR loans is 0.75 % and for USD loans 3 %.

However, where the safe harbour interest rate for a non-CHF loan granted by a Swiss company to affiliates is below the required minimum interest rate for CHF loans, the higher CHF rate as minimum rate applies. Conversely, if a non-CHF loan is granted to a Swiss company and the maximum interest rate for a non-CHF loan is lower than the one for a CHF loan, it is admissible to apply the higher CHF rate.

If the Swiss company grants debt-financed non-CHF loans, the same minimum spread as for CHF loans granted by Swiss companies is required.

„Hidden equity“

If down or cross-stream loans are granted to Swiss companies by related parties (shareholders, group companies etc.), tax authorities check whether the Swiss company is adequately equity-financed from a tax perspective (as defined in FTA Circular No. 6 dated 6 June 1997). The excessive part of the debt qualifies as deemed equity as far as it has been granted by related parties. Interest on the hidden equity qualifies as hidden profit distribution - even if the above-mentioned interest rates have been met. As a result, the interest on the hidden equity is added back to taxable profit for income tax purposes and is is further subject to Swiss dividend withholding tax.

Directlinks to the annual guidance published by the FTA (only available in german )

a) CHF loans

CHF (PDF)

b) non CHF loans

foreign currencies (PDF)

 

The members of FRORIEP‘s tax team are available for any questions you may have.

Read this article in german: Safe Harbour Zinssätze 2019 für Konzerndarlehen - damit das Konzerndarlehen nicht als verdeckte Gewinnausschüttung qualifiziert wird

Stay on top of the latest legal topics in this field and subscribe now to receive the latest blog posts as soon as they appear on our website.

SUBSCRIBE TO OUR BLOG


Topics: Tax

  
Name 13

Dimitri M. Rotter

Dimitri joined our firm as an associate in 2003 and became a partner in 2013. Dimitri is a very experienced tax lawyer based at the Zug office but heads also the Geneva tax practice of the firm. He has a long standing practice of corporate tax due to his background with the Big Four accounting firms. He represents clients in tax litigation cases in the Swiss Courts up to the Supreme Court. Dimitri focuses on domestic and cross border tax, including tax optimisation, and selected aspects of VAT notably for private client and their investment structures where he assists clients with regard to all related legal aspects. Special domains of expertise are aviation tax and syndicated loans. He obtained his law degree from the University of Geneva (lic. iur.) in 1990 and was admitted to the Lucerne Bar in 1993. He qualified as a Swiss Certified Tax Expert in 2002. His working languages are German, French and English. Dimitri is a member of the Zug Bar Association, the Swiss Bar Association, the International Fiscal Association, EXPERTSuisse (Swiss Institute of Certified Accountants and Tax Counsels) and of the International Tax Planning Association (ITPA).

Connect with me:
Name 13

Thomas Zellweger

Thomas Zellweger is specialised in all areas of domestic and international, individual and corporate taxation. He has developed expertise in tax planning and relocation of high net worth individuals as well as on M&A transactions, reorganisations and relocations. Before joining Froriep, he worked as manager in a trust company in Zurich. Before joining the trust company he was part of the Corporate Tax Financial Service team of a large accounting firm in Zurich. Thomas Zellweger studied at the University of Zurich and graduated with a Master of Laws in 2012. He was admitted to the Bar in 2015. His working languages are German and English.

Connect with me:
https://blog.froriep.com/hubfs/IMAGES_BLOGPOST_850x850/Safe-Harbour-Zinss%C3%A4tze.jpg