An analysis by Tax Partner AG, Taxand global member in Switzerland
Experts Stephanie Eichenberger, Marco Vitali, and Luca Aspesi from our Swiss firm, Tax Partner AG, explore the critical tax implications for companies facing the need for financial restructuring, particularly as they enter the period for annual accounts.
Relief for debt waivers regarding profit tax
While subsidies paid à fonds perdu are explicitly exempt from profit tax, this exemption previously applied to debt waivers only in exceptional cases. This practice has now been relaxed to the effect that debt waivers do not have any profit tax consequences for the restructured company, provided they are not recorded in the profit and loss statement of the statutory accounts.
Stamp duty incurs without loss offset
Subsidies and debt waivers by shareholders generally incur a 1% stamp duty. To support companies in need of financial restructuring, an exemption amount of CHF 10,000,000 applies. In excess of this, the company can request for a waiver for the stamp duty. In both instances, the Swiss Federal Tax Administration (FTA) requires that the accumulated loss be offset against the restructuring proceeds.
Relevance of the loss offset for the repayment of restructuring proceeds
The offset of losses also affects the taxation of the repayment of restructuring proceeds to shareholders. Such proceeds are considered capital contributions, the repayment of which is not subject to withholding tax or income tax under certain conditions.
Capital contributions can be repaid to shareholders without deducting withholding tax if the company records these contributions in a separate account in its balance sheet. However, this is prevented by offsetting the restructuring proceeds against the balance sheet loss, as, according to FTA practice, such offset definitely leads to the forfeiture of capital contribution reserves that could be repaid free of withholding tax.
If the company in need of financial restructuring is held by persons who are not entitled to a full refund of the withholding tax, the advantages of claiming the exemption and/or waiver of the stamp duty must be weighed against the potential loss of the withholding tax-free repayment of the capital contribution.
Read the full analysis from our experts here.
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