Zurich Geneva Zug Lausanne London Madrid February 2014 TAx ALERT SWISS SAFE HARBOUR INTEREST RATES ON INTRA GROUP LOANS FOR 2014 Michael Fischer / Samuel Ramp 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 it. between 1.5% and 2.75%, depending among other things on the property‘s purpose (building land, residential or industrial property etc.) and market value. 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). Loans in currencies other than CHF are subject to separate interest rates published in their own circular. Contrary to CHF loans, the interest rate is the same irrespective of the Swiss company acting as lender or borrower. The 2014 interest rates for EUR loans is 2% and for USD loans 2.25%. In cases where the interest rate for a non CHF loan to a Swiss company is inferior to that applicable to a corresponding CHF loan it is admissible to apply the higher CHF rate as maximum rate. CHF loans granted by Swiss companies „Hidden equity“ Equity financed loans in CHF granted by a Swiss company to its shareholders or affiliates must bear a minimum interest rate of 1.5% in 2014. Debt financed intra group loans must bear interest of the higher of 1.5% and actual interest + 0.5% on amounts up to CHF 10 m (actual interest + 0.25% on amounts exceeding CHF 10m). These minimum requirements aim at insuring a minimum level of interest income for Swiss companies lending to affiliates. If down or cross-stream loans are granted to Swiss companies financing ratio becomes relevant too. Excessive intra group debt financing will usually be subject to a requalification for tax purposes whereby part of the debt will be deemed to be (non-interest bearing) equity. Any interest paid on such deemed equity will be requalified as hidden profit distribution for tax purposes resulting in tax adjustments both at profit tax and WHT level. CHF loans granted to Swiss companies The members of FRORIEP‘s tax team are available for any questions you may have. In the case of loans granted by an affiliate to a Swiss company the FTA prevents undue erosion of the Swiss company‘s profit base by setting maximum interest rates. Working credits in CHF granted to a Swiss trading or manufacturing company are subject to a maximum interest rate of 3.75%. For loans granted to Swiss holding and asset management companies the maximum is 3.25%. Loans secured by real estate may bear a maximum rate Non CHF loans Link: SFTA Guidance for CHF loans SFTA Guidance for non CHF loans TAX ALERT PAGE 2 February 2014 Samuel Ramp [email protected] Tel. +41 44 386 60 00 Michael Fischer [email protected] Tel. +41 44 386 60 00 OUR TAX SPECIALISTS Michael Fischer, Zurich [email protected] Tel. +41 44 386 60 00 Samuel Ramp, Zurich [email protected] Tel. +41 44 386 60 00 Dimitri Rotter, Zug [email protected] Tel. +41 41 710 60 00 Lukas Wadsack, Zug [email protected] Tel. +41 41 710 60 00 WHO is Froriep? Founded in Zurich in 1966, Froriep is one of the leading law firms in Switzerland, with around 90 lawyers and offices in Zurich, Geneva, Lausanne and Zug, as well as foreign offices in both London and Madrid, serving clients seeking Swiss law advice. We have grown a domestic and international client base ranging from large international corporations to private clients. Our unique, truly integrated, international structure mirrors our strong cross-border focus. We value and promote continuity and strong client relationships. Our teams are tailor-made, assembled from every practice area and across our network of offices. Many of our lawyers are recognised as leaders in their practice areas, and our clients benefit from our in-depth knowledge and the rich diversity of talents, languages and cultures that makes our lawyers particularly versatile and adaptive. ZURICH Bellerivestrasse 201 CH-8034 Zurich Tel. +41 44 386 60 00 Fax+41 44 383 60 50 [email protected] GENEVA 4 Rue Charles-Bonnet CH-1211 Geneva 12 Tel. +41 22 839 63 00 Fax+41 22 347 71 59 [email protected] ZUG Grafenaustrasse 5 CH-6304 Zug Tel. +41 41 710 60 00 Fax+41 41 710 60 01 [email protected] LAUSANNE 9a Place de la Gare CH-1003 Lausanne Tel. +41 21 863 63 00 Fax+41 21 863 63 01 [email protected] LONDON 17 Godliman Street GB-London EC4V 5BD Tel. +44 20 7236 6000 Fax+44 20 7248 0209 [email protected] Madrid Antonio Maura 10 ES-28014 Madrid Tel. +34 91 523 77 90 Fax+34 91 531 36 62 [email protected] ©F roriep 2014. This newsletter provides general information on legal developments in Switzerland and is not intended as advice on specific matters. Reproduction is authorised if the source is indicated.
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