If loans from Swiss companies to their shareholders or other related parties do not bear sufficient interest, this constitutes a monetary benefit to the extent of the underpayment of interest. Such monetary benefit may trigger tax consequences in particular for corporate income and withholding tax purposes (WHT).
The Swiss Federal Tax Administration (FTA) publishes the safe haven interest rates on an annual basis. When applying these interest rates, the SFTA assumes, without further evidence, that the interest paid is in line with the arm’s length principle.
The interest rates applicable for 2021 were published in the FTA’s circular letters. The interest rates for loans in Swiss francs from and to Swiss companies have not changed compared to the previous year. However, interest rates for loans in foreign currencies were reduced for the current tax year, in some cases significantly.
Loans in foreign currencies granted by Swiss companies (loan receivables)
The minimum interest rate considered at arm’s length for loans in EUR was reduced from 0.5% in 2020 to 0.25% in 2021. The permissible minimum interest rate for loans denominated in USD was be reduced from 2.25% in 2020 to 1.25% in 2021.
Loans in foreign currencies granted to Swiss companies (loan payables)
For loans from shareholders or other related parties (group companies), the same spread may be applied according to the FTA circular on save haven interest rates for the year 2021 for loans denominated in Swiss francs, however with a mark-up for loans to finance the business of the Swiss company: Up to the equivalent value of CHF 1m a spread of 2.75% or 2.25% may be applied and from the equivalent value of CHF 1m a spread of 0.75% or 0.5% can be taken into account.
To avoid that part of your intra-group debt could be considered as “hidden equity” by the tax administrations, and that your interest rates for intra-group loans are not at arm’s length in accordance with FTA’s annual circular, contact us today and discuss your situation.