Individuals

September 25, 2024

Investments in securities, structured products, collective investment schemes, etc.

Workshop by Stefan Oesterhelt and Daniel Bieri at the ISIS) seminar on September 23-24, 2024 entitled "Investments in securities, structured products, collective investment schemes, etc."

all solutions from this seminar

Stefan Oesterhelt

Daniel Bieri

Note: This language version is an automatically generated translation. The text may therefore contain linguistic and terminological errors.

view in original language (German)

Case 1: Convertible Loan

1. Facts

Domestic company X. AG (start-up) receives interest-free convertible loans of CHF 1 million each from 21 investors. These are automatically converted into newly issued shares of X. AG at the end of the 18-month term, with a 25% discount applied to the price of the last financing round.

Questions

What are the tax consequences of the conversion (the investors each receive shares with a value of CHF 1.33 million)?
How should the case be assessed if an investor sells the loan after 6 months for CHF 1.1 million?

2. Variant: 20% conversion discount

How should the case be assessed if the conversion discount were only 20%?

Case 2: Reverse Convertibles

1. Facts

Bank X, a domestic bank, issues the following product:

Issuer: X. AG

Issue date: July 9, 2024

Maturity: July 9, 2026

Issue price: CHF 1,000

Reference Asset: SMI

Fixed Coupon: 7% p.a. (payable annually)

Knock-in Event: SMI falls below 80% of its value at the time of issue

Redemption amount: Scenario 1: No knock-in event: CHF 1,000

Scenario 2: Knock-in event occurred: CHF 1,000 x (SMIF/SMII)

"SMIF" is the SMI price at maturity

"SMII" is the SMI price at the time of issue

Question

How should the product be treated from the perspective of withholding tax, income tax, and turnover tax?

2. Variant 1

What differences would need to be considered if the maturity date were already July 11, 2025?

Issuer: X. AG

Issue date: July 12, 2024

Maturity: July 14, 2025

Issue price: CHF 1,000

Reference Asset: SMI

Fixed Coupon: 7% p.a. (one-time payment at maturity)

Knock-in Event: SMI falls below 85% of its value at the time of issue

Redemption amount: Scenario 1: No knock-in event: CHF 1,000

Scenario 2: Knock-in event occurred: CHF 1,000 x (SMIF/SMII)

"SMIF" is the SMI price at maturity

"SMII" is the SMI price at the time of issue

3. Variant 2

What differences would need to be considered if the knock-in event were 50%?

Issuer: X. AG

Issue Date: July 9, 2024

Maturity: July 9, 2026

Issue price: CHF 1,000

Reference Asset: SMI

Fixed Coupon: CHF 2% p.a. (payable annually)

Knock-in Event: SMI falls below 50% of its value at the time of issue

SMI 2-year volatility: 20%

Redemption amount: Scenario 1: No knock-in event: USD 1,000

Scenario 2: Knock-in event occurred: CHF 1,000 x (SMIF/SMII)

"SMIF" is the SMI price at maturity

"SMII" is the SMI price at the time of issue

4. Variant 3

What differences would need to be considered if the underlying asset were a corporate bond (with a Single-B rating)?

Issuer: X. AG

Issue Date: July 9, 2024

Maturity: July 9, 2026

Issue price: CHF 1,000

Reference Asset: 5-year bond of Y. AG (Y-Bond)

Fixed Coupon: 7% p.a. (payable annually)

Knock-in Event: Y-Bond falls below 90% of its value at the time of issue

Redemption amount: Scenario 1: No knock-in event: CHF 1,000

Scenario 2: Knock-in event occurred: CHF 1,000 x (YBondF/YBondI)

"YBondF" is the price of the Y-Bond at maturity

"YBondI" is the price of the Y-Bond at the time of issue

5. Variant 4

What differences would need to be considered if the underlying asset were a mixed basket containing three SMI stocks and two industrial bonds (both with a single-A rating)?

Issuer: X. AG

Issue date: July 9, 2024

Maturity: July 9, 2026

Issue price: CHF 1,000

Reference Asset: 20% NESN; 20% UBSG; 20% NOVN; 20% ABB23/26;

20% GEBERIT19/28

Fixed Coupon: 7% p.a. (payable annually)

Knock-in Event: At least one underlying falls below 80% of its value at the time of issue

Redemption Amount: Scenario 1: No Knock-in Event: CHF 1,000

Scenario 2: Knock-in event occurred: CHF 1,000 x (RAF/RAI)

"RAF" is the price of the Reference Assets at maturity

"RAI" is the price of the Reference Assets at the time of issue

6. Variant 5

What differences would need to be considered if the underlying were a mixed basket containing 4 SMI stocks and an industrial bond (with a BBB rating)?

Issuer: X. AG

Issue Date: July 9, 2024

Maturity: July 9, 2026

Issue price: CHF 1,000

Reference Asset: 20% NESN; 20% UBSG; 20% NOVN; 20% ROG; 20% GEORGFISCHER18/28

Fixed Coupon: 7% p.a. (payable annually)

Knock-in Event: At least one underlying falls below 80% of its value at the time of issue

Redemption Amount: Scenario 1: No Knock-in Event: CHF 1,000

Scenario 2: Knock-in event occurred: CHF 1,000 x (RAF/RAI)

"RAF" is the price of the Reference Assets at maturity

"RAI" is the price of the Reference Assets at the time of issue

Case 3: Future

1. Facts

Bank X, a domestic bank, issues the following product:

Issuer: X. AG

Issue Date: July 9, 2024

Maturity: July 9, 2026

Underlying asset: Novartis shares (NOVN)

Issue price: CHF 30 (Variant: CHF 25)

Exercise price: CHF 70 NOVNI CHF 100

"NOVNI" is the price of the Novartis share on July 9, 2024

2Y swap rate: 0.9%

Payout amount: NOVNF - Exercise price

"NOVNF" is the price of the Novartis share at maturity

Question

How should the product be treated from the perspective of withholding tax, income tax, and sales tax?

Case 4: Basket Certificate

1. Facts

Bank X, a domestic bank, issues the following product. The underlying asset consists of five SMI shares.

Issuer: X. AG

Issue date: July 9, 2024

Maturity: July 9, 2026

Issue price: CHF 1,000

Reference Asset: 20% NESN; 20% UBSG; 20% NOVN; 20% ROG; 20% GF

Investment: Dividends are reinvested in the underlying assets.

Redemption amount: CHF 1,000 x (RAF/RAI)

"RAF" is the price of RA at maturity

"RAI" is the price of RA at the time of issue

Question

How should the product be treated from the perspective of withholding tax, income tax, and sales tax?

2. Variant 1

What differences should be considered if the underlying consists solely of 4 SMI shares?

Issuer: X. AG

Issue date: July 9, 2024

Maturity: July 9, 2026

Issue price: CHF 1,000

Reference Asset: 25% NESN; 25% UBSG; 25% NOVN; 25% ROG

Investment: Dividends are reinvested in the underlying assets.

Redemption Amount: CHF 1,000 x (RAF/RAI)

"RAF" is the price of the RA at maturity

"RAI" is the price of RA at the time of issue

3. Variant 2

What differences would need to be considered if the underlying asset were composed of two commodities?

Issuer: X. AG

Issue Date: July 9, 2024

Maturity: July 9, 2026

Issue Price: CHF 1,000

Reference Asset: 50% copper; 50% palladium

Redemption Amount: CHF 1,000 x (RAF/RAI)

"RAF" is the price of the RA at maturity

"RAI" is the price of the RA at the time of issue

Case 5: Capital-protected product

1. Facts

Bank X, a domestic bank, issues the following product.

Issuer: X. AG

Issue date: July 9, 2024

Maturity: July 9, 2026

Issue price: CHF 1,000

Reference Asset: 20% NESN; 20% UBSG; 20% NOVN; 20% ROG; 20% GF

Capital protection: 50%

Redemption Amount: MAX(CHF 500; 90% x CHF 1,000 x (RAF/RAI))

"RAF" is the price of RA at maturity

"RAI" is the price of RA at the time of issue

Market-based interest rate: CHF 2-year swap rate (July 9, 2024): 0.93%.

The issuing bank X has a single-A rating

Question

How should the product be treated from the perspective of withholding tax, income tax, and turnover tax?

Case 6: Certificate on a crypto asset

1. Facts

Bank X, which is domiciled in Switzerland, issues the following product:

Issuer: X. AG

Issue date: July 9, 2024

Maturity: July 9, 2026

Underlying asset: Ethereum (ETH)

Investment: Half of the ETH coins are delegated to a staking pool. The other half is transferred to a liquidity pool. The staking and liquidity rewards earned are reinvested in ETH.

Issue price: CHF 1,000

Redemption amount: CHF 1,000 * (ETHI / ETHF)

"ETHI" is the price of ETH at the start of the term (i.e., CHF 1,000)

"ETHF" is the price of ETH at the end of the term

Case 7: AT1 Bonds

1. Facts

On July 9, 2024, Bank X issues a bond with a debt waiver pursuant to Art. 11 et seq. of the Banking Act (Write-Down Bond), which qualifies as Additional Tier 1 Capital (AT1) for regulatory purposes.

If X Bank’s core capital falls below 7% (so-called CET1 ratio), the bond is written down (so-called High Trigger AT1). The bond has a perpetual maturity (so-called Perpetual Instrument).

The terms of the bond are as follows:

Issuer: X. AG

Issue Date: July 9, 2024

Currency: CHF

Interest rate: 4%

Maturity: None (perpetual)

First Call Date: July 9, 2030

In addition, the following factors are known:

6-year CHF swap rate (at issuance): 0.95%

Spread for a bond without a write-down component with a 6-year maturity at the time of issuance: 1.3%

Question

How should the coupon be treated for withholding tax and income tax purposes?

Case 8: Bail-in Bonds

1. Facts

On July 9, 2024, X Bank (a globally systemically important bank) issues a so-called bail-in bond, which may be written down (in whole or in part) by FINMA under certain conditions. The bond may be counted toward X Bank’s Total Loss Absorbing Capital (TLAC).

The terms of the bond are as follows:

Issuer: X. AG

Issue date: July 9, 2024

Currency: EUR

Interest rate: 5%

Maturity: July 9, 2039

Question

How should the coupon be treated for withholding tax and income tax purposes?

Case 9: Cross-Currency Swap

1. Facts

X. Bank, a domestic resident, and a natural or legal person (customer) resident in Switzerland or abroad enter into the following cross-currency swap involving exclusively a final currency exchange (no exchange of principal amounts at inception or maturity):

Issuer: X. AG

Start date: July 9, 2024

Maturity Date: July 9, 2026

Notional amounts: CHF 10,000,000 and USD 11,174,000, respectively, based on the USD/CHF spot rate on July 9, 2024

Payments: During the term, the client pays quarterly (i) CHF 3m SARON on the CHF notional amount and receives (ii) USD 3m SOFR plus 10 basis points on the USD notional amount

Maturity: The bank receives CHF 10,000,000 from the client and pays the client USD 11,174,000 (USD/CHF spot rate on July 9, 2024)

In addition to the cross-currency swap, the client enters into the following currency transaction with X. AG:

FX transaction: The client purchases CHF 10,000,000 from X. AG and pays USD 11,174,000 for it, with value date on July 9, 2024.

Question

Are the interest payments subject to withholding tax?

2. Variant 1

X. Bank, which is domiciled in Switzerland, and a natural or legal person (customer) domiciled in Switzerland or abroad enter into the following cross-currency swap (exchange of notional amounts at inception and maturity):

Issuer: X. AG

Start date: July 9, 2024

Maturity date: July 9, 2026

Notional amounts: CHF 10,000,000 and USD 11,174,000, respectively, based on the USD/CHF spot rate on July 9, 2024

Settlement: Upon settlement, the customer receives CHF 10,000,000 from the bank and pays USD 11,174,000 to the bank (USD/CHF spot rate as of July 9, 2024)

Payments: During the term, the client pays quarterly (i) CHF 3m SARON on the CHF principal amount and receives (ii) USD 3m SOFR plus 10 basis points on the USD principal amount

Maturity: The bank receives CHF 10,000,000 from the client and pays the client USD 11,174,000 (USD/CHF spot rate as of July 9, 2024)