Switzerland reviews securities lending transactions rules
17 January 2018 Zurich
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Switzerland’s Federal Tax Administration (FTA) has issued a revised version of its current rules on securities lending and repo transactions to preclude dividend stripping transactions.
Among the amendments is a change to the Swiss withholding tax (WHT) refund position of foreign resident borrowers of Swiss securities.
The amended circular letter 13, contains changes to the previous practice of the FTA, issued in September 2006.
In its review of the new rulebook, auditing firm PwC noted that, under the previous circular letter, the FTA ruled that Swiss and foreign borrowers of Swiss securities, who received a dividend or interest payment, were able to claim for a full or partial refund of WHT levied at a rate of 35 percent.
The 35 percent was levied, either on the basis of Swiss domestic law in case of Swiss borrowers, or on the basis of an applicable double tax treaty.
However, if the securities were sold or delivered to a third party by the borrower, only the third party would be entitled to file a claim for a WHT refund.
The old practice also generally provided the refunding of WHT to foreign borrowers of Swiss securities.
The FTA suggested that more recently, the rules has been “abused deliberately” by those who have lent Swiss securities to foreign borrowers over the dividend ex-date, which the FTA stated “led to perceived dividend stripping cases”.
The new guidelines explain that a WHT refund, in the case of long borrowing, can only be claimed by the original lender, which is stated by the FTA, to be the party that initiates the first transfer of the Swiss securities under a securities lending transaction.
The new amendments mean both the original lender as well as the borrower cannot file a claim for a Swiss WHT refund — only the final buyer of the shares will be entitled to a Swiss WHT refund under the appropriate double tax treaty.
The old rules have not changed in cases where the borrower is resident in Switzerland.
Though PwC stated that FTA’s new rules still contains some amended rules with regard to the Swiss individual when securities lending transactions are made.
This includes a general corporate income tax anti-abuse clause in connection with participation relief.
The rules are thought to be applicable from 1 January 2018.
Among the amendments is a change to the Swiss withholding tax (WHT) refund position of foreign resident borrowers of Swiss securities.
The amended circular letter 13, contains changes to the previous practice of the FTA, issued in September 2006.
In its review of the new rulebook, auditing firm PwC noted that, under the previous circular letter, the FTA ruled that Swiss and foreign borrowers of Swiss securities, who received a dividend or interest payment, were able to claim for a full or partial refund of WHT levied at a rate of 35 percent.
The 35 percent was levied, either on the basis of Swiss domestic law in case of Swiss borrowers, or on the basis of an applicable double tax treaty.
However, if the securities were sold or delivered to a third party by the borrower, only the third party would be entitled to file a claim for a WHT refund.
The old practice also generally provided the refunding of WHT to foreign borrowers of Swiss securities.
The FTA suggested that more recently, the rules has been “abused deliberately” by those who have lent Swiss securities to foreign borrowers over the dividend ex-date, which the FTA stated “led to perceived dividend stripping cases”.
The new guidelines explain that a WHT refund, in the case of long borrowing, can only be claimed by the original lender, which is stated by the FTA, to be the party that initiates the first transfer of the Swiss securities under a securities lending transaction.
The new amendments mean both the original lender as well as the borrower cannot file a claim for a Swiss WHT refund — only the final buyer of the shares will be entitled to a Swiss WHT refund under the appropriate double tax treaty.
The old rules have not changed in cases where the borrower is resident in Switzerland.
Though PwC stated that FTA’s new rules still contains some amended rules with regard to the Swiss individual when securities lending transactions are made.
This includes a general corporate income tax anti-abuse clause in connection with participation relief.
The rules are thought to be applicable from 1 January 2018.
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