Publication by the Federal Tax Administration (FTA) of the annual circular letters on the interest rates allowed for tax purposes in 2023 on advances or loans made between a company and its shareholders or related parties.

When a company grants advances or loans without interest or for an insufficient interest to its shareholders or related parties, it is granting them constructive dividends for tax purposes. The same applies when a company pays interest at an inflated rate on claims held by shareholders or related parties. Such deemed dividends are typically subject to 35% withholding tax and must be declared spontaneously within 30 days of their due date. The withholding tax due must be paid within the same period. The same criteria apply to direct taxes for the calculation of deemed dividends for corporations and cooperatives.

In order to determine whether the remuneration of loans granted between the company and its shareholders or relatives is appropriate for tax purposes, the FTA applies the interest rates published in the above-mentioned circular letters for the tax period 2023: CHF loans and foreign currency loans.

In summary, the main changes compared to the 2022 tax period are the following:

• The minimum rate on CHF loans to shareholders and relatives has been increased to 1.5%, an increase of 1.25% compared to 2022. This increase is also reflected on foreign currency loans, including a rate of 3% for EUR loans (compared to 0.5% in 2022) and 3.75% for USD loans (compared to 2% in 2022).

• At the same time, the maximum interest rates allowed on Swiss franc loans to shareholders and related parties have also been increased by 1.25 points compared to 2022. Except however for the interest rate applying to operating loans up to CHF 1m, which were increased by only 0.75%, resulting in a 0.5% decrease in the spread.

• Regarding the capitalization rate determining the valuation of a company, the FTA now refers directly to the instructions of the Swiss Tax Conference (“Conférence Suisse des impôt”, “Schweizerische Steuerkonferenz”), which has the merit of clarifying its practice in this area.

It is particularly important for a company to analyse the interest rates applied in relations with its shareholders or relatives to ensure compliance with the so-called "safe haven" interest rates and thus avoid potential tax adjustments in respect of constructive dividends with consequences in terms of withholding tax and direct tax.

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Published by Stefano Cavargna (email)

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