Lexology: amended rules for refund of Swiss withholding tax

There are no specific rules in Swiss tax law on securities lending and borrowing (SLB) or repo transactions. Such transactions were thus far governed by administrative guidance published by the Swiss federal tax administration (FTA).

As of 1 January 2018, the guidance underwent material changes regarding the possibility of Swiss withholding tax refund claims by non-Swiss borrowers under SLB arrangements over Swiss securities. As this not only applies to SLB transactions, but also to repos, the new rules equally affect  refund claims by non-Swiss cash providers under repo arrangements over Swiss securities.

The amended rules applicable from 2018

Where the non-Swiss borrower sold the Swiss securities to a third party prior to the dividend or interest due date, the rules remain unchanged: neither the lender nor the borrower will be allowed to claim any refund of Swiss withholding tax, and such right to reclaim sits exclusively with the third party acquirer, based on Swiss domestic law or applicable tax treaties.

In circumstances involving long borrowing, however, the situation is reversed under the amended rules. Instead of the non-Swiss borrower, it is the lender who has a right to claim a refund of the Swiss tax. This lender is understood to be the ultimate lender in a chain: Where the SLB transaction is made over one stage only, it is the direct lender to the non-Swiss borrower; in case of a chain of SLB transactions, it is the very first lender in the chain. The refund claim may be based on Swiss domestic law where the lender is a Swiss person, or on applicable double taxation treaties where the ultimate lender resides in a tax treaty jurisdiction. Timing

The amended rules apply as of 1 January 2018. There is no grandfathering for SLB or repo transactions entered into before 1 January 2018; the new rules therefore apply to all dividend or interest due dates as of 1 January 2018.

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