Good news for Swiss groups!

Current situation

Up to January 1, 2023, a notification procedure replacing the payment of Swiss withholding tax was only available to Swiss companies holding at least 20% of the capital of their Swiss subsidiaries. This percentage was a legacy from the past and resulted from the legal provisions that applied to the Swiss participation relief (Swiss holding regime applicable for direct taxes) before 2011. It was reduced to 10% in the context of the corporate tax reform II (RIE II), which has been in force since 2011; but the ordinance in matters of Swiss withholding tax had not been amended accordingly.

Change at national level

This inconsistency has been (partially) rectified as of January 1, 2023, and the concordance between (i) the Swiss participation relief (direct taxes) and (ii) the Swiss withholding tax relief at source has been restored. A 10% shareholding is now sufficient and, upon request, Swiss withholding tax on dividends and hidden dividends in this case will no longer be payable. The cash flow of Swiss groups will be reduced accordingly.

We regret however that this concordance is limited to the percentage of holding (10% in lieu of 20%) and does not include participations with a market value of at least CHF 1,000,000, as is the case for the Swiss participation relief.

Change at international level

Two cross-border measures have also been adopted as from January 1, 2023.

Firstly, notification procedures replacing the payment of Swiss withholding tax on dividends (or similar) from Swiss companies to their foreign parent, and based on double taxation agreements (DTAs), is now valid for five years instead of three.

Secondly, where a DTA does not specify a minimum holding requirement for qualifying participations, this requirement has also been reduced from the current 20% to 10% as of January 1, 2023. The minimum thresholds, above or below 10%, provided for in the DTAs will continue to apply.

Conclusion

Although not fully satisfactory, these measures are to be welcomed as they substantially reduce the administrative burden of Swiss or foreign corporate shareholders, in particular in relation to requests for refunds of Swiss withholding tax, and have positive effects on the cash flow of Swiss and foreign shareholder companies.