I. Tax-approved interest rates for the year 2022

Every year in January, the Federal Tax Administration (FTA) publishes the interest rates recognised for tax purposes for advances and loans in Swiss francs and in foreign currencies in two circulars (circulars no. 195 and 196; so-called safe haven interest rates). Compared to 2021, the interest rates for loans in Swiss francs from and to Swiss companies remained unchanged. In contrast, the permissible interest rates for loans in foreign currencies were increased, in some cases significantly, compared to the previous year.  

Tax-approved interest rates for advances or loans in Swiss francs

Tax-approved interest rates for advances or loans in foreign currencies

1. background

If loans from Swiss companies to their shareholders or other related parties (asset loans) do not bear interest or do not bear sufficient interest, this qualifies as a payment in kind to the extent of the insufficient interest. This is subject to withholding tax and, at the level of the company, for the purposes of profit tax as a profit anticipation to be offset. 

If, on the other hand, loans from shareholders or other related parties to Swiss companies (loans on the liabilities side) bear too high an interest rate, this constitutes a payment in kind subject to withholding tax to the extent of the excessive interest rate, as well as a hidden profit distribution to be offset against profit tax at the company level. The taxpayer must prove that interest rates agreed upon that deviate from these safe haven interest rates stand up to a comparison with third parties and are therefore in line with the market. 

If the loan is taken out or granted at the published interest rates and conditions (in particular provisions on hidden equity capital), the loans are deemed to be in line with market conditions in the calendar year without further evidence. In other words, there is no risk of tax consequences. 

2. loans in Swiss francs

For the assessment of an appropriate interest rate on loans in Swiss francs to participants or related third parties or from participants or related third parties, the FTA has based its calculation on the following interest rates since 1 January 2022:

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The FTA has also published separate interest rates for real estate loans from participants or related third parties to Swiss companies in Circular No. 195, which will not be discussed in more detail here. 

3. loans in foreign currencies

With a few exceptions, the FTA has in some cases significantly increased the permissible minimum interest rates for loans in foreign currencies from Swiss companies to participants or related third parties (asset loans) compared to the previous year. For example, in 2022 the permissible minimum interest rate for loans in euros is 0.5% (2021: 0.25%) and for loans in US dollars 2% (2021:1.25%). The adjustments to foreign currency interest rates reflect the rising inflation rates in many major economies and regions and the associated interest rate turnaround. 

Analogous to the circular for loans in Swiss francs, the same mark-up may be taken into account for operating loans (section 2.2 of the circular) from participants or related third parties to a Swiss company (passive loans). In any case, business-related proof must be provided as to why no obligation was entered into in lower interest-bearing Swiss francs. 

II. Safe Haven Interest Rates in Times of Negative Interest Rates

Although the interest rate on the Swiss Confederation's ten-year federal bond will show a positive yield in January 2022 for the first time in a long time, the interest rate level in Switzerland is still at a historic low (the key interest rate of the Swiss National Bank SNB remains unchanged at - 0.75%). 

In view of the negative interest rates that are due at Swiss banking institutions above a certain credit balance, it could be economically attractive for companies with significant liquidity reserves in Swiss bank accounts to grant loans below the minimum interest rate of the FTA or even interest-free loans to participants or related third parties. On the one hand, the company waives interest on the loan granted, but on the other hand avoids or reduces the burden of negative interest on bank balances.  

Although this procedure appears to make good business sense from the company's point of view, it cannot be recommended without reservation. The interest-free loans to participants or related third parties violate the minimum interest rate of 0.25%, which the FTA still prescribes as a safe haven interest rate for asset loans in 2022.  

The business argument that the granting of loans can avoid the threat of or actual negative interest rates is convincing in itself, but is not accepted by the FTA as the only argument to prove third market conformity. In the current low interest rate environment, loans are granted at historically low interest rates, but hardly ever without interest. The FTA's assessment of whether a loan interest rate that deviates from the Circular is considered to be in line with the third market is based on the specific circumstances of the individual case. The avoidance or reduction of negative interest rates on the part of the lender can be an argument, but successful proof depends on other factors. 

III. recognise the need for action (early) and benefit from it

In particular, we recommend companies that carry loans (on the assets or liabilities side) in foreign currencies on their balance sheet to review the loan agreements on an ongoing basis and especially with regard to the latest adjustments by the FTA as of 1 January 2022. The adjustment to the higher minimum interest rates also offers opportunities from a tax perspective, which is why an early and proactive approach pays off. The tax team at Gfeller + Partner AG will be happy to advise you on the subject of tax-recognised interest rates on loans and negative interest. Do not hesitate to contact us.

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