Insights

The accounting treatment of waiver income is crucial for determining its exemption from Swiss corporate income tax. Recently, the Swiss federal tax authorities issued a new circular letter (number 32a) addressing the financial restructuring of corporations and cooperatives. According to this guidance, waiver income from shareholders that is directly recorded in the company’s equity should always be exempt from Swiss corporate income tax.

Switzerland suspends the application of the most-favoured-nation clause based on a protocol to the tax treaty between Switzerland and India. Dividend distributions from Switzerland to India until December 31, 2024, will still benefit from this clause.

Practice and doctrine assume different points in time for the due date of hidden profit distributions. The Swiss federal supreme court recently approved the Swiss federal tax authorities’ complaint in matters of public law against the judgment of the Federal Administrative Court and confirmed that the due date of hidden profit distributions should be the booking date. For simplicity and practical reasons, the end of the financial year is considered as the due date for several hidden profit distributions. Late interest of currently 4.75% becomes due 30 days after due date of hidden dividend distributions. To cover withholding tax liabilities and late interest thorough tax indemnification is crucial in M&A transactions.

A taxpayer had a debt to a Swiss limited liability company/GmbH held by him, for which the cantonal tax authorities had refrained from claiming a personal taxable income under certain conditions communicated in writing and accepted by the taxpayer. The taxpayer/borrower subsequently breached these conditions with the result that the cantonal tax authorities qualified the loan receivable as a simulated loan.

An indirect partial liquidation clause is standard in share purchase agreements. However, buyers are well-advised to carefully plan the acquisition of a Swiss target company as well as the subsequent integration and prepare together with sellers a defensive argumentation to disprove application of the indirect partial liquidation theory.

The Swiss federal supreme court recently confirmed the long-standing practice that hidden profit distributions are committed by submitting incorrect annual financial statements to the Swiss federal tax authorities.

The Swiss federal supreme court has ruled that taxpayers must decide whether they wish to claim the CHF 10m Swiss stamp tax exemption threshold or creation of qualified capital contribution reserves. The CHF 10m Swiss stamp tax exemption can only be claimed, if contributions/financial restructuring income are offset against losses that must be proven by a timely booking entry.

As per January 1, 2023, some improvements to the notification procedure for Swiss withholding taxes will enter into force.