Federal Council postpones overhaul of withholding tax system

Bern, 24.06.2015 - In view of the negative outcome of the consultation, the Federal Council will refrain from proposing a complete reform of the withholding tax system to Parliament for the time being. However, the withholding tax exemption for capital instruments of systemically important banks should be expanded and thus ensure greater system stability. During its meeting today, the Federal Council instructed the Federal Department of Finance to prepare the dispatch. The appropriateness of reforming the withholding tax system should be re-examined at a later date.

During its meeting today, the Federal Council decided not to pursue a switch from the debtor principle to the paying agent principle for the time being as a result of the negative outcome of the consultation. Instead, it is proposing an extension of the temporary tax exemption for CoCos and write-off bonds. A similar exemption should also be established for bail-in bonds. All of the exemptions should come into effect on 1 January 2017 and be limited to a five-year period. The FDF has been instructed to prepare the corresponding dispatch by September 2015.


Withholding tax makes a considerable contribution to federal receipts and plays a safeguard role for income and wealth taxes. The current design of the tax has room for improvement. Swiss groups frequently avoid the tax by financing themselves through foreign companies. In this way, value-added is created abroad, companies incur expenses for maintaining foreign structures and the safeguard role of the tax is only partly fulfilled.

The Federal Council initiated a legislative project in autumn 2014 to address these drawbacks. The reform would have strengthened the Swiss capital market and the safeguard purpose of withholding tax. This would have been achieved technically by switching from the debtor principle to the paying agent principle.

The paying agent principle should be discussed again before the planned exemptions for CoCos, write-off bonds and bail-in bonds expire. However, in view of the outcome of the consultation, the intention is to wait until the result of the referendum on the popular initiative "Yes to the protection of privacy" is known.

Outcome of the consultation

While many of those who participated in the consultation acknowledged the advantages of the proposed reform, they were against implementing it at the current time. They advocated waiting until after the introduction of the automatic exchange of information (AEOI) at the international level and also the discussion on the future of banking secrecy in Switzerland. The Swiss Bankers Association rejects the reform proposal and, backed by economiesuisse, instead supports the partial transition to a reporting system in Switzerland too.

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