Interim solution for withholding tax on too-big-to-fail instruments

Bern, 21.08.2024 - During its meeting on 21 August 2024, the Federal Council approved a temporary extension of the special rules on withholding tax for too-big-to-fail (TBTF) instruments to 31 December 2031. This ensures that banks can continue to obtain capital from within Switzerland on competitive terms, thereby contributing to financial stability. At the same time, the temporary nature of the extension ensures that the legislator is able to formulate a definitive regulation as part of the overall package of TBTF measures.

Since 1 January 2013, the Federal Act on Withholding Tax (WTA) has contained clauses that provide for temporary exemptions for interest on TBTF instruments (such as bail-in or write-off bonds). These exemptions have already been extended twice – most recently until 31 December 2026. Without another extension, interest on TBTF instruments issued after that date would be liable for withholding tax.

Exemption clauses are needed

The exemption clauses for TBTF instruments make sure that banks can issue instruments from Switzerland on competitive terms. This option for procuring capital provides the necessary financial stability, which is in the public interest. Taxing the interest on TBTF instruments would make it extremely difficult and expensive for banks to obtain funds. Many international investors would not accept the withholding tax and would migrate to other products unless the withholding tax were offset by higher interest rates.

Therefore, in its report on banking stability of 10 April 2024, the Federal Council also advocates an unlimited extension of the exemption clause in the WTA (Measure 21). However, as it will not be possible for the package of legislative measures envisaged in this report to come into force by 1 January 2027, the Federal Council has instructed the Federal Department of Finance (FDF) to present a consultation draft which provides for a temporary extension of the exemption clauses for TBTF instruments. The Federal Council is proposing that this extension last until the legal implementation of the measures in the Federal Council report on banking stability enters into force, but at least until 31 December 2031. This should ensure that no gaps arise between 1 January 2027 and the entry into force of the package of legislative measures on banking stability. The proposed limitation also enables the legislator to definitively evaluate this measure in the context of the overall TBTF package.

Address for enquiries

Adrian Grob, Communications Specialist
Federal Tax Administration FTA
Tel. +41 58 464 90 00, media@estv.admin.ch (media enquiries only)