Swiss “Safe Haven” Interest Rates for the Year 2024

In the case of loans and advances (hereinafter referred to as “loans”) granted within a group or between a company and a related party, e.g. a shareholder, the question always arises as to what interest rate is appropriate. In principle, the Swiss tax authorities accept the interest rate agreed between the related parties, provided that it is in line with the market. For loans within Switzerland or for loans granted by Swiss companies to related parties domiciled abroad, the “safe haven interest rates” of the Federal Tax Administration (FTA) can also be used for Swiss tax purposes. These published interest rates are assumed to be in line with the market.

The FTA’s circulars set minimum interest rates for loans granted by a company domiciled in Switzerland to its shareholders or related parties (active loans). If, on the other hand, such a Swiss company receives a loan from its shareholders or related parties (passive loans), maximum interest rates are provided. The applicable interest rate essentially depends on whether the loan is an asset or liability loan and whether the loan is granted in Swiss francs or a foreign currency.

However, in addition to these “safe haven” rates, it is also possible to apply a different interest rate if it can be proven that this interest rate is in line with the market. Proof can be provided, for example, by means of a study or on the basis of the concrete financing of a loan (e.g. in the case of back-to-back loans). In order to assess whether a loan interest rate stands up to third-party comparison, the Swiss tax authorities also rely on the transfer pricing guidelines of the Organisation for Economic Co-operation and Development (OECD), in particular on Chapter X on financial transactions, which is contained therein.

It is important to note that the “Safe Haven” interest rates published by the FTA are only binding on the tax authorities in Switzerland. In the case of loans granted to companies established abroad, it is therefore important to ensure that the interest rates are also accepted by the tax authorities abroad. Most foreign tax authorities also base their assessment on the above-mentioned transfer pricing guidelines of the OECD and accept the interest expense if it stands up to a third-party comparison.

Furthermore, the borrower’s financing situation must also be taken into account. In doing so, it must always be checked whether an independent third party would also grant the borrower a loan. In particular, the borrower must not be underfinanced. To determine whether a company is underfunded, the Swiss and foreign tax authorities rely on so-called “thin-cap rules”, which are used to calculate a company’s minimum equity. If, on the basis of these schematised calculation methods, it is determined that the group company receiving the loan does not have sufficient equity, part of the loan granted is reclassified as equity of the borrower (hidden equity). As a result, interest paid on this part of the loan is not deductible for tax purposes. For tax purposes, this part of the interest is treated as a dividend payment. In addition, certain countries, such as Germany, only allow interest expense in a certain ratio to net profit or EBIT(DA).

Loans in Swiss francs

In the case of loans denominated in Swiss francs, the interest rates published by the FTA in an annual circular apply to such advances or loans. The following interest rates refer to the year 2024.

Minimum interest rate: If the loan is granted by a Swiss company to a related party or company, it is required that the interest rate covers at least the lender’s cost price, e.g. the interest rate of the debt financing, plus a margin. However, the interest rate must be at least 1.50%.

Margin and minimum interest rate for 2024 according to “Safe Haven” Rules:

Maximum interest rate: If a Swiss company takes out a loan from a related party or company, the amount of the maximum interest rate accepted for tax purposes differs depending on whether (i) it is a real estate loan or an operating loan and (ii) the loan is granted to a trading and manufacturing company or to a holding and asset management company.

If the borrower is a trading and manufacturing company, the following “safe haven” interest rates for a business loan will apply for the year 2024:

Maximum interest rates for operating loans granted to trading and manufacturing companies for the year 2024 according to the “Safe Haven” Rules:

* For the calculation of the above-mentioned limits, the loans of all participants and related parties must be added together.

Loans in foreign currency – example of a loan in euros

For loans in foreign currencies, the interest rates for such advances or loans, also published by the FTA in an annual circular, apply.

Minimum interest rate: If the loan is granted by a Swiss company to a related party or company, the interest rate must cover at least the cost of the lender, i.e. the interest rate of the debt financing, plus a margin. However, the interest rate must be at least equal to the minimum interest rates for loans in foreign currency published by the FTA. For such loans, the FTA provides for different “safe haven” interest rates depending on the currency. These are published annually in the FTA’s circular. If the applicable interest rate for a foreign currency is lower than the minimum interest rate for Swiss francs, the minimum interest rate for Swiss francs shall apply. From the lender’s point of view, it is again relevant that the interest rate covers the cost of the debt financing plus a margin, but at least reaches the minimum interest rate determined for the foreign currency. For loans or advances in euros, the published minimum interest rate for the year 2024 is, for example, 2.50%.

Margin and minimum interest rate for the year 2024 according to the “Safe Haven” Rules for loans granted in euros without foreign currency risk (e.g. lender has euro as functional currency):

*If there is a foreign currency risk, the minimum margin is always at least 0.50%

Maximum interest rate: If a Swiss company takes out a foreign currency loan from a related party or company, the amount of the maximum interest rate is determined on the basis of the minimum interest rate defined for the currency and the permissible margin at the minimum interest rate. The allowable margin is identical to the margin that applies to loans in Swiss francs. If a Swiss company takes out a loan in a foreign currency, it must also justify to the Swiss tax authorities why no obligation has been entered into in lower-interest Swiss francs.

Maximum interest rates for operating loans granted to trading and manufacturing companies in euros for the year 2024 according to the “Safe Haven” Rules:

*For the calculation of the above-mentioned limits, the loans of all participants and related parties must be added together.

As mentioned above, the “Safe Haven” interest rates are only binding on the Swiss tax authorities. If the borrower is a company based in the EU, it should also be noted that the application of unilateral “safe haven” interest rates under the so-called “Hallmark” E.1. of the European Union’s disclosure rules (reporting obligation for certain cross-border arrangements or DAC 6). Swiss companies that apply Swiss safe haven interest rates to transactions with group companies domiciled in an EU member state should therefore be aware that these transactions may be reportable in the EU.

Summary and recommendation

The annually published “Safe Haven” interest rates are a welcome administrative relief for Swiss companies that grant loans to related parties or receive loans from them. However, the “safe haven” interest rates are only binding on the tax authorities in Switzerland. As soon as loans are granted to companies based abroad, foreign tax laws must be observed and the consultation of a local tax advisor should be considered.

In individual cases, e.g. in the case of loans granted by companies domiciled abroad whose interest rate exceeds the “safe haven” rates or in order to meet the individual financing situation, the market-compliant interest rate must be determined on the basis of the specific circumstances. The Swiss tax authorities accept interest rates that are higher or lower than the “safe haven” interest rates, provided that it can be proven that they stand up to the third-party comparison. In our experience, it is worthwhile to contact the responsible cantonal tax administration in such situations and record the permissible interest rate or its calculation in writing in a tax ruling. At the same time, questions regarding the calculation of the tax-required equity can also be clarified.

Since the interest rates in the FTA circulars change annually, we recommend that intra-group loan agreements include a clause according to which the agreed interest rate can be adjusted annually. If contracts provide for such a clause, it must be ensured that the interest rates used are actually reviewed annually.

We are happy to assist you in drafting financing agreements, determining the tax-permissible interest rates and confirming the tax consequences of a planned financing by obtaining tax rulings.

By Vischer, Switzerland, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact switzerland@transatlanticlaw.com

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