By Elisa Kaminsky, BaseFirma, Miami
The Swiss tax authorities have recently issued new circulars No. 3 and No. 4 announcing an update to the safe harbor interest rates for intercompany loans.
Safe Harbor Rules
Switzerland has established new safe haven interest rates for controlled loans. The rates and other relevant information on intra-group loans are updated annually by the tax authorities.
The circulars include indications on the applicable interest rates to know if a Swiss company acts as creditor or debtor of the loan, and they take into consideration if the loans were contracted in local or foreign currency and the type of debt contracted .
The updated security rates established by the Swiss tax authorities for 2020 include the minimum rates for intercompany loans granted and the maximum rates for loans received.
When the Swiss company applies the safe harbor interest rates to analyze its intercompany loans, the tax administration considers the transactions to be at arm’s length without requesting additional analyses.
Loans concluded in Swiss francs – Swiss company as lender
In the case where the Swiss company acts as a lender, the safe harbor rate is 0.25% for loans financed by equity.
For debt-financed loans, the minimum interest rate should include a 0.5% margin on loans up to 10 million francs (about $10.23 million) and a 0.25% margin on loans above this amount.
Loans concluded in Swiss francs – Swiss company as borrower
In the event that the Swiss company acts as the borrower, the maximum rates applicable on home loans are between 1.0% and 2.25% (depending on the type of loan and the level of debt financing).
On operational loans received by a Swiss commercial or manufacturing enterprise, the maximum rates are between 3.0% for loans up to CHF 1 million (approximately USD 1.02 million) and 1.0% for the excess.
Finally, on operating loans received by a Swiss holding company, the rates are 2.5% for loans up to CHF 1 million (approximately USD 1.02 million) and 0.75% on excess.
Receivables recorded in foreign currencies
These safe haven interest rates are applicable when the Swiss company acts as lender or borrower.
The interest rate for equity-funded loans in euros is 0.5% (previously 0.75%) and for loans in US dollars 2.25% (previously 3%).
In the event that the loans are financed by debt, the applicable interest must include a margin of 0.5% (previously 0.75%) for loans denominated in euros or 2.25% (previously 3%) for loans in US dollars.
Note that higher interest rates may apply when the Swiss entity acts as borrower and rates follow the arm’s length principle.