Substance requirements from a Swiss withholding tax perspective (2)
By Alexey Pyatov, Treuhand- und Revisionsgesellschaft Mattig-Suter & Partner
Swiss withholding taxes (WHT) are relevant for outbound payments from Swiss subsidiaries to international holdings. Dividends bear a 35% tax rate that can be only decreased by a Treaty or EU-Directive if particular requirements are met. The Swiss Federal Tax Authority (SFTA) checks for substance before allowing a WHT reduction. General considerations are a confirmation of tax residency, beneficial ownership and tax avoidance via Treaty shopping.
What are the practical elements of “substance”? To answer this question, both SFTA and Swiss court practices must be analysed. There have been five main court cases so far: Holland (1984), Luxembourg (2001), Guernsey (2013) and two Denmark cases (2005 and 2015). There are three main categories of “substance”.
I. Personnel and infrastructure substance
The SFTA determines whether there is sufficient personnel and infrastructure to fulfil the business purpose of the company. The SFTA may request financial and bank statements, salary slips, and telephone, fax, internet and hosting costs as well as rent expenses. Qualified staff for key functions is a crucial part of enterprise substance.
II. Functional substance
It is important that the business and economic purpose of the company is implemented from all necessary sources. Holding companies should monitor their subsidiaries’ activities, providing strategic guidance and (usually) financing. A holding structure should not be tax-motivated.
III. Financial substance
Holding companies should have a balanced financing structure. In the view of the SFTA, the book value of a subsidiary’s assets must be at least 30% equity-financed.
With BEPS, we are witnessing a paradigm change in the tax world. Transparency and substance are becoming key words. It is therefore advisable to start reorganising current structures or build new, more sophisticated constructs.
Alexey PyatovTreuhand- und Revisionsgesellschaft Mattig-Suter & Partner, Pfäffikon, Switzerland
T: +41 55 415 54 00
Mattig-Suter und Partner is a leading Swiss company specialising in tax, legal, accounting and audit services. MSuP is a reliable and fully-informed partner when it comes to tax matters. Clients benefit from extensive experience acquired over many years, as well as from an extensive national and international network. Strengths include intensive practical experience and a targeted training and further education programme.
Alexey Pyatov, Swiss certified tax expert, MSc Banking & Finance, lic. oec. publ., has years of experience in tax-planning for high net worth individuals and international companies. He focuses on global structures and long-term tax strategies.xxx
Publlished: Spring 2017 l Photo: Iakov Kalinin - Fotolia.com