As we enter the period for annual accounts, numerous companies are facing the need for financial restructuring, with shareholders contemplating potential restructuring measures. Tax implications are also a critical consideration.
Relief for debt waivers regarding profit tax
While subsidies paid à fonds perdu are explicitly exempt from profit tax, this exemption previously applied to debt waivers only in exceptional cases. Namely if the shareholder loan in question had already been treated as hidden equity for tax purposes or if a third party would not have granted the loan under the same conditions.
This practice has now been relaxed to the effect that debt waivers do not have any profit tax consequences for the restructured company, provided they are not recorded in the profit and loss statement of the statutory accounts.
Stamp duty incurs without loss offset
Subsidies and debt waivers by shareholders generally incur a 1% stamp duty. To support companies in need of financial restructuring, an exemption amount of CHF 10,000,000 applies. In excess of this, the company can request for a waiver for the stamp duty.
In both instances, the Swiss Federal Tax Administration (FTA) requires that the accumulated loss be offset against the restructuring proceeds. The Federal Supreme Court has affirmed this in relation to the exemption amount (decision of 7.9.2023, 9C_610/2022), while the Federal Administrative Court previously ruled differently regarding the stamp duty waiver (decision of 29.11.2021, A-5073/2020).
Following the Federal Supreme Court ruling, the FTA insists on the offset of the balance sheet loss for waiver of the stamp duty. If the loss is not offset, the FTA refuses to waive the stamp duty, and the stamp duty must be paid. However, in the sense of a “reverse solution”, the FTA is willingto refund the stamp duty if the Federal Administrative Court, as the last instance for stamp duty waivers, eventually confirms its decision.
Relevance of the loss offset for the repayment of restructuring proceeds
The offset of losses also affects the taxation of the repayment of restructuring proceeds to shareholders. Such proceeds are considered capital contributions, the repayment of which is not subject to withholding tax or income tax under certain conditions.
Capital contributions can be repaid to shareholders without deducting withholding tax if the company records these contributions in a separate account in its balance sheet. However, this is prevented by offsetting the restructuring proceeds against the balance sheet loss, as, according to FTA practice, such offset definitely leads to the forfeiture of capital contribution reserves that could be repaid free of withholding tax.
If the company in need of financial restructuring is held by persons who are not entitled to a full refund of the withholding tax, the advantages of claiming the exemption and/or waiver of the stamp duty must be weighed against the potential loss of the withholding tax-free repayment of the capital contribution.
Further, the repayment of capital contributions is generally not subject to income tax in Switzerland. Following a new ruling by the Federal Supreme Court, this does not require the capital contributions to be booked in a separate account at the company (decision of 17.3.2023, BGE 149 II 158). Instead, shareholders may also prove in another way that a payment received from the company originates from a capital contribution and should therefore be exempt from income tax. This is particularly feasible in cases of disclosed restructuring.
It is important to note that the Federal Supreme Court’s judged case involved a liquidated company, hence an overall assessment of repayment as a capital contribution was possible. For repayments of standing companies, it is likely to be more difficult to successfully enforce a qualification as a repayment of a capital contribution. The application of the Federal Supreme Court judgement in administrative practice is still unclear.
It is therefore advisable to have the existence and amount of the capital contribution as well as the modalities of the income tax-free repayment confirmed through a ruling request before restructuring measures are implemented.