Contributed By Homburger
Under the current Swiss tax legislation, interest paid in respect of notes issued by an SPE resident in Switzerland is subject to Swiss federal withholding tax at a rate of 35%. While Swiss investors are used to the Swiss withholding tax, there is a limited market outside Switzerland only for debt instruments subject to Swiss withholding tax despite most of the double taxation treaties of Switzerland providing for a full refund of the Swiss withholding tax deducted. For that reason, securitisations involving Swiss originators and foreign capital markets use structures allowing the issuer to make interest payments free of Swiss federal withholding tax. This typically requires relatively complex structures, which may include structures using two SPEs, ie, a foreign issuer SPE and a Swiss intermediary SPE. There are ongoing discussions to change the Swiss federal withholding tax system from the current issuer-based system to a paying-agent system or to an exchange of information system. However, it is unclear by when and how the system will be changed.