Swiss Safe Haven interest rates for the year 2024 (2024)

22 February 2024

In the case of loans and advances, (hereinafter "loans") granted within a group of companies 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 it is in line with the market. For loan relationships within Switzerland or for loans granted by Swiss companies to related parties domiciled abroad, the "safe haven interest rates" of the Swiss Federal Tax Administration (FTA) can also be relied upon for Swiss tax purposes. These published interest rates are assumed to be market conform.

The circulars of the FTA specify minimum interest rates for loans granted by a company domiciled in Switzerland to its shareholders or related parties (loans receivable). If, on the other hand, such a Swiss company receives a loan from its shareholders or related parties (loans payable), maximum interest rates are provided for. The applicable interest rate depends mainly on whether the loan is a loan receivable or a loan payable and whether the loan is granted in Swiss francs or a foreign currency.

In addition to these "safe haven" interest rates, however, it is also possible to apply a different interest rate if it can be demonstrated that this interest rate is in line with the market. The proof can be provided, for example, by means of a study or on the basis of the actual financing of a loan (e.g. in the case of back-to-back loans). In order to verify whether a loan interest rate stands up to third-party comparison, the Swiss tax authorities also rely, among other things, on the transfer pricing guidelines of the Organization for Economic Cooperation and Development (OECD), in particular Chapter X on financial transactions contained therein.

It is important to note that the "safe haven" interest rates published by the FTA are only binding for the tax authorities in Switzerland. In the case of loans granted to companies domiciled abroad, care must therefore be taken to ensure that the interest rates are also accepted by the foreign tax authorities. Most foreign tax authorities also base their assessment on the aforementioned OECD transfer pricing guidelines and accept the interest expense if it stands up to a third-party comparison.

Further, the financing situation of the borrower must also be taken into account. It always has to be checked whether an independent third party would also grant a loan to the borrower. In particular, the borrower must not be underfinanced. In order to determine whether a company is underfinanced, the Swiss and foreign tax authorities rely on so-called "thin cap rules", which are used to calculate the minimum equity capital of a company. If, on the basis of these schematized calculation methods, it is determined that the Group company receiving the loan does not have sufficient equity capital, part of the loan granted is reclassified as equity capital of the borrower (hidden equity capital). This has the consequence that 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, allow interest expense only in a certain proportion to net income or EBIT(DA).

Swiss Franc Loan

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

Minimum interest rate: If the loan is granted by a Swiss company to a related person 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 the year 2024 according to "Safe Haven" Rules:

Maximum interest rate: If a Swiss company takes out a loan from a related person or company, the amount of the maximum interest rate accepted for tax purposes differs depending on (i) whether the loan is a real estate loan or a business loan and (ii) whether 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 an operating loan will apply for 2024:

Maximum interest rates for operating loans granted to trading and manufacturing companies for the year 2024 in accordance with "Safe Haven" Rules:

* For the calculation of the above limits, the loans of all participants and related parties are to be cumulated.

Loan in foreign currency - example of a loan in euro

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 person 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 at least meet the minimum interest rates published by the FTA for loans in foreign currency. For such loans the FTA provides different "safe haven" interest rates depending on the currency. These are published annually in the FTA circular. If the published interest rate for a foreign currency is lower than the minimum interest rate for Swiss francs, the minimum interest rate for Swiss francs must be applied. From the lender's point of view, it is again relevant that the interest rate covers the cost price of the external 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, for example, is 2.50%.

Margin and minimum interest rate for the year 2024 according to "Safe Haven" Rules for loans granted in Euro without foreign currency risk (e.g. lender has the Euro as its 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 person or company, the maximum interest rate is determined on the basis of the minimum interest rate defined for the currency and the allowable margin to the minimum interest rate. The allowable margin is identical to the margin applicable to loans denominated 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 commitment was made in lower-interest Swiss francs.

Maximum interest rates for operating loans granted to commercial and manufacturing companies in euros for the year 2024 in accordance with "Safe Haven" Rules:

*For the calculation of the above limits, the loans of all participants and related parties are to be cumulated.

As mentioned above, the "Safe Haven" interest rates are only binding for the Swiss tax authorities. If the borrower is a company domiciled in the EU area, it should also be noted that the application of unilateral "safe haven" interest rates may fall under the so-called "Hallmark" E.1. of the European Union disclosure rules (reporting obligation for certain cross-border arrangements or DAC 6). Swiss companies applying 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 subject to reporting requirements in the EU.

Summary and recommendation

The annually published "Safe Haven" interest rates are a welcome administrative relief for Swiss companies granting loans to related parties or receiving loans from them. However, the "Safe Haven" interest rates are only binding for the tax authorities in Switzerland. As soon as loans are granted to companies domiciled abroad, the foreign tax laws must be observed and consulting a local tax advisor must 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 take account of the individual financing situation, the interest rate in line with the market must be determined on the basis of the specific circ*mstances. The Swiss tax authorities accept interest rates that exceed or fall below the "safe haven" rates, provided that it can be proven that they stand up to third party comparison. From our experience, it is worthwhile in such situations to contact the responsible cantonal tax administration and to record the permissible interest rate or its calculation in writing in a tax ruling. At the same time, questions regarding the calculation of the equity capital required for tax purposes can be clarified.

Since the interest rates in the FTA circulars change annually, we recommend that a clause be included in intercompany loan agreements stating that the agreed interest rate can be adjusted annually. If contracts include such a clause, it must be ensured that the interest rates used are actually reviewed annually.

We will be happy to assist you in drawing up financing agreements, determining the interest rates permissible for tax purposes and confirming the tax consequences of any planned financing by obtaining tax rulings.

Author: Adrian Briner

Author