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view in original language (German)Financing is a key lever in M&A transactions - and at the same time harbors considerable tax risks. These case studies show how the 10/20 non-banking rules and withholding tax apply in complex loan and guarantee structures. The topics covered include syndicated financing, cross-border structures, relocation of registered offices and convertible bonds. The solutions provide you with the necessary understanding to correctly assess financing structures for tax purposes and avoid typical pitfalls.
Domestic company X. AG is the debtor under a syndicated loan agreement.
The agreement is a so-called Letter of Credit Facility, which was taken out by X. AG from the foreign company Z. Ltd. for the benefit of the seller (Y. Ltd.) in connection with an acquisition.
If X. AG fails to pay the purchase price to Y. Ltd on time, the latter may demand payment of the purchase price from Z. Ltd (event of default). In this case, Z. Ltd has a claim (immediately due) against X. AG in the amount of the purchase price, which bears interest at 4% per annum.
The debtor under the contract is the Swiss Branch, which is registered in the Commercial Register as a branch of a Dutch company (X. BV). X. BV is a group company of an industrial conglomerate that is actually managed in the Netherlands. Must this contract be subject to the 10/20 non-banking rules?
X. AG is now a corporation domiciled in Liechtenstein that holds the domestic Y. AG as well as the German Z. GmbH. The shareholder of X. AG is Mr. X, who is domiciled in Liechtenstein and personally guarantees the loan agreement. X. AG transfers the funds raised under the loan agreement to its domestic subsidiary via an intra-group loan.
How would the case be assessed if Mr. X did not guarantee the loan agreement but pledged the shares of X AG in favor of the creditors (or made a transfer for security purposes)?
How should the case be assessed if Mr. X did not guarantee the loan agreement but pledged a securities account held privately by him in favor of the creditors (or made a security transfer)?
X. AG, a Liechtenstein-based company, has been a debtor under a loan agreement (term loan and RCF) with a term of 8 years and more than 10 non-bank creditors since 2024.
In 2026, X. AG relocates its registered office to Switzerland.
Are interest payments under the loan agreement subject to withholding tax following the relocation of X. AG’s registered office to Switzerland?
At the time of the relocation, there are only 4 non-bank creditors under the loan agreement. Only after the relocation to Switzerland do transfers to an additional 7 non-banks occur.
At the time of the relocation, there are 4 non-bank creditors under the loan agreement concluded in 2024. At the time of the relocation, X. AG also has an additional 10 long-term liabilities for a fixed amount. With regard to the 20-non-bank rule, it therefore has 14 non-bank creditors.
After the relocation of its registered office, X. AG enters into a loan agreement in 2027, under which there are an additional 10 non-bank creditors.
Y. Ltd, based in the BVI, is the debtor under a loan agreement concluded in 2024 with more than 10 non-bank creditors, which is guaranteed by Y. Ltd’s parent company, Z. Ltd, also based in the BVI.
In 2026, Z. Ltd relocates its registered office to Switzerland.
Are interest payments under the loan agreement subject to withholding tax following the relocation of X. AG’s registered office to Switzerland if the provisions regarding the use of funds, as set forth in the FTA circular of February 5, 2019, are violated?
Now, the foreign Z. Ltd is acquired by the newly established domestic Z. AG as part of a quasi-merger (under civil law via a scheme of arrangements). The domestic Z. AG now acts as the guarantor of the loan agreement in place of Z. Ltd.
Luxembourg-based Y. SA issues a convertible bond (term: 5 years) with an annual coupon of 2% p.a. to more than 10 non-bank creditors in 2026, which is guaranteed by X. AG, the publicly traded domestic parent company of Y. SA. At maturity, investors may convert the convertible bond into shares of X. AG at a price of CHF 1.50. (At the time of the convertible bond’s issuance, the price of X. AG is CHF 1.30 [variant: CHF 2.50]).
In 2026, Y. SA will use the proceeds from the convertible bond primarily to acquire a call option from X. AG, which entitles it to purchase X. AG shares at a price of CHF 0.01.
Y. SA does not acquire a call option from X. AG but instead passes the proceeds from the convertible bond on to X. AG as an interest-bearing loan.
