Switzerland: Swiss 10/20/100 Non-Bank Rule

Last Updated: 11 December 2017
Article by Susanne Schreiber, Daniel U. Lehmann and Christoph Suter
Most Read Contributor in Switzerland, August 2019

Legal Basis

Unlike many countries, Switzerland does not levy an interest withholding tax on interest paid on private and commercial loans (including on arm's length inter-company loans). However, a 35% withholding tax is levied on interest paid to Swiss or foreign lenders on bonds or similar debt instruments issued by Swiss resident issuers, as well as on bank interest.

Notions of Bond and Bank under Swiss WHT

Under Swiss tax law, the definition of a bond is broader than commonly under-stood under Swiss civil law or referred to in financial markets. The Swiss Federal Supreme Court considers that bonds or debentures are written debt acknowledgments for fixed amounts which are issued in multiple tranches at comparable conditions for the purpose of collective financing, and which allow the lender to evidence, reclaim or transfer its receivable.

Loans qualify as bonds for Swiss WHT purposes if the following conditions are met:

  • A Swiss borrower issues written debt acknowledgments over fixed amounts;
  • these written debt acknowledgments are based on a single credit agreement and have identical conditions;
  • there are more than 10 non-bank lenders (including lenders under sub-participations), i.e. not including Swiss or foreign banks as defined by the Swiss Federal Banking Act (SFBA) or comparable foreign banking legislation at the place of establishment of the lender; and
  • the total amount of lending is at least CHF 500'000.

Loans qualify as debentures similar to bonds for Swiss WHT purposes if the fol-lowing conditions are met:

  • A borrower issues written debt acknowledgments over fixed amounts;
  • these written acknowledgments have variable conditions;
  • there are more than 20 non-bank lenders, i.e. lenders other than Swiss or foreign banks as defined by the applicable banking legislation; and
  • the total amount of lending is at least CHF 500'000.

Bank interest is considered interest paid by Swiss banks or Swiss branches of foreign banks acting under a banking license. In addition, it includes interest from any company that publicly offers to accept interest-bearing deposits or that accepts interest-bearing deposits on a continuous basis from more than 100 de-positors (not counting Swiss or foreign banks as defined by the applicable bank-ing legislation) with an aggregate amount of deposits of at least CHF 5'000'000.

In addition to banks, companies under common consolidation with the borrower are not counted for purposes of the 10/20/100 non-bank rule.

If the 10/20/100 non-bank rules as well as the intercompany counting rule are not complied with, a 35% withholding tax is imposed on interest payable by the borrower to all lenders within the category of borrowing for which the rule was violated (i.e. bonds, debentures similar to bonds, or bank deposits).

Non-Swiss Borrowers/Issuers

Interest on debentures issued by foreign borrowers are generally not subject to Swiss interest withholding tax, regardless of whether the 10/20/100 bank rules are complied with or not. However, such debentures can be deemed to be issued by a Swiss borrower, and therefore subject to the 10/20/100 non-bank rules, if the following conditions apply:

  • The loan issued by the non-Swiss borrower is guaranteed by a direct or indirect Swiss parent company by way of a down-stream guarantee (according to long-standing administrative practice, guarantees provided by other group companies – so called up- and cross-stream guarantees – are not considered harmful in respect of the 10/20/100 non-bank rule as Swiss statutory law limits such guarantees to freely distributable reserves of the guarantor);
  • the proceeds from the issuance of the loan by the non-Swiss borrower are – directly or indirectly - lent onwards to a Swiss group company; and
  • such lending to a Swiss group company exceeds the equity of the non-Swiss borrower (as calculated under IFRS rules) at the year-end closing date of the non-Swiss borrower.

Under these conditions, the loan issued by a non-Swiss borrower is assimilated to a Swiss-issued loan; a violation of the 10/20/100 non-bank rule would there-fore trigger 35% Swiss interest withholding tax on interest payments in relation to such loan.

In addition, the wording of the law suggests that group companies are also counted as lenders under the 10/20/100 non-bank rule in case of a non-Swiss borrower. This is different from the counting rules applicable to Swiss borrowers (see above). While there are good arguments to support that the counting rules should be the same in both situations so that group companies are never count- ed, it appears prudent to count group companies as lenders in case of a non-Swiss borrower until there is an administrative practice or a court ruling confirm-ing the contrary.

Contractual Safeguards

Credit facility agreements entered into by a Swiss borrower, or a non-Swiss bor-rower under a guarantee with a Swiss parent company, should state that:

  • the lenders are not allowed to assign, transfer, or grant sub-participations of the loan or any portion of it to any other lenders which are non-banks, or
  • the lenders have to ensure that at no times assignments or transfers are made, or sub-participations are granted, by which the number of 10/20 non-bank lenders would be exceeded.

These contractual safeguards could help prevent a re-qualification from loan to bond with respective Swiss interest withholding tax consequences.


When entering into external financing transactions where either a Swiss borrower or a Swiss guarantor is involved, or where proceeds are planned to be used in Switzerland, compliance with the 10/20/100 rule should be ensured by agreeing on appropriate contractual safeguards.

In respect of intercompany loans and cash pooling arrangements among group companies, particular attention should be paid to the contractual mechanism if a foreign group company benefits from a guarantee granted by a direct or indirect Swiss parent company. To obtain certainty about the Swiss tax treatment, seek-ing advance clearance from the Swiss Federal Tax Administration by way of a tax ruling is recommended.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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