- The Federal Council and Parliament no longer want to levy withholding tax on interest on bonds.
- Because the left has called the referendum, the people have the last word on September 25th.
- Finance Minister Ueli Maurer (SVP) presented the Bundesrat’s arguments to the media.
Today, 35 percent withholding tax is due on interest income. Private individuals in Germany get the tax back if they declare the interest income in their tax return. The tax also applies to interest on domestically issued bonds. The Federal Council writes that this is a disadvantage for the Swiss economy.
The Federal Council and Parliament therefore no longer want to levy the levy on bonds issued domestically. Finance Minister Ueli Maurer explained why to the media in Bern. Because of the referendum against the change in the Withholding Tax Act on September 25, the people have the last word.
For private individuals abroad and for companies, the tax refund is complicated, writes the Federal Council on the submission. It could also be that the tax is not or only partially refunded in response to an application from abroad. And because withholding tax does not exist everywhere abroad, Swiss companies issue bonds abroad in order to avoid the tax.
Swiss financial center lagging behind
In the bond market, Switzerland lags behind the financial centers of Luxembourg, Singapore, South Korea, the USA and the UK. According to the Federal Council, significantly more bonds are issued in these countries than in Germany.
In order for more bonds to be issued domestically in the future, the withholding tax on newly issued domestic bonds is to fall. This would make these bonds more attractive for Swiss investors. In the case of existing obligations, on the other hand, the withholding tax should remain.
According to the will of the Federal Council and Parliament, the transfer tax for domestic bonds and certain other securities should also be abolished. It is due today when securities are bought or sold. Transfer tax is to continue to be levied on foreign bonds.
But the bill brings even more: for legal entities – such as stock corporations – and for investors abroad – the Federal Council and Parliament also want to eliminate withholding tax on interest from bank accounts. The tax should remain in place for private individuals in Germany.
More tax revenue
As the Federal Council writes, the federal government, cantons and municipalities would have more tax revenue with the changes in the law because companies are increasingly borrowing money in Switzerland. “In the best-case scenario, the reform could therefore finance itself in the year it comes into force,” writes the Federal Council.
The left-wing referendum committee claims that the abolition of the withholding tax encourages tax crime. It therefore claims annual tax losses of up to CHF 800 million. Around CHF 500 million of this flowed directly abroad. Only around 200 corporations benefited from the innovations, but no SMEs.
According to estimates by the Swiss Federal Tax Administration (ESTV), without turnover tax on domestic bonds, income would fall by around CHF 25 million per year. In the case of withholding tax, the shortfall in income in the year it came into force is estimated to be in the tens of millions.
Thereafter, the shortfall in income is likely to increase if bonds subject to withholding tax are gradually replaced by securities exempt from withholding tax. In the long term, the Confederation is anticipating a drop in income of CHF 215 to 275 million per year – as far as can be estimated – with the economic situation remaining constant and interest rates low.