Switzerland: Securities Lending And Repos: Amended Rules For Refund Of Swiss Withholding Tax

Last Updated: 9 January 2018
Article by Peter Reinarz, Christoph Suter and Daniel U. Lehmann

Most Read Contributor in Switzerland, September 2019

There are no specific rules in Swiss tax law on securities lending and borrowing ("SLB") or REPO transactions. Such transactions were thus far governed by administrative guidance published by the Swiss federal tax administration ("FTA") in its circular letter no. 13 on 1 September 2006 ("Circ. 13").

As of 1 January 2018, Circ. 13 underwent material changes regarding the possibility of Swiss withholding tax refund claims by non-Swiss borrowers under SLB arrangements over Swiss securities. As the circular letter not only applies to SLB transactions, but also to REPOs, the new rules equally affect mutatis mutandis refund claims by non-Swiss cash providers under REPO arrangements over Swiss securities.

According to the FTA, the reason for amending the rules was a perceived misuse of double tax treaties by non-Swiss borrowers on behalf of lenders, through which the refund percentage was enhanced (so-called dividend arbitrage). The amended rules were also inspired by a decision of the Swiss federal administrative court of 20 December 2016, in which a refund of Swiss withholding tax was denied to a non-Swiss borrower because of a lack of beneficial ownership in relation to the dividends received.

Summary of the rules applicable until the end of 2017

Under the old rules, which applied until the end of 2017, non-Swiss borrowers of Swiss securities were allowed to claim a refund of Swiss withholding tax if they held securities over the dividend or interest date (so-called "long borrowing"), i.e. securities were not sold to a third party prior to the dividend or interest payment date. The refund percentage corresponded to the rate stipulated in the double taxation treaty between Switzerland and the borrower's country of residence. Where the securities were sold to a third party prior to the dividend or interest date, only the third party buyer (to whom the original dividend or interest was paid) could claim a refund of the Swiss withholding tax, and neither the lender nor the borrower under the SLB arrangement had a right to file a refund claim.

Granting a right for a refund to the non-Swiss borrower in cases of long borrowing was initially considered by the FTA as a "pragmatic solution" for SLB arrangements over Swiss securities which, by inadvertence, extended over a dividend or interest due date. Analysis performed by the FTA over the last few years – via extensive questionnaires sent to non-Swiss claimants – apparently showed that this pragmatic approach led to targeted misuse by foreign owners of Swiss securities: According to the FTA, Swiss securities were lent to borrowers with a better withholding tax refund rate than the one available to the lender, leading to tax treaty shopping in the FTA's perception.

The amended rules applicable from 2018

Where the non-Swiss borrower sold the Swiss securities to a third party prior to the dividend or interest due date, the rules remain unchanged: Neither the lender nor the borrower will be allowed to claim any refund of Swiss withholding tax, and such right to reclaim sits exclusively with the third party acquirer, based on Swiss domestic law or applicable tax treaties.

In circumstances involving long borrowing, however, the situation is reversed under the amended rules. Instead of the non-Swiss borrower, it is the lender who has a right to claim a refund of the Swiss tax. This lender is understood to be the ultimate lender in a chain: Where the SLB transaction is made over one stage only, it is the direct lender to the non-Swiss borrower; in case of a chain of SLB transactions, it is the very first lender in the chain. The refund claim may be based on Swiss domestic law where the lender is a Swiss person, or on applicable double taxation treaties where the ultimate lender resides in a tax treaty jurisdiction. The amended circular letter requires that the refund claim by the lender is supported by proof that the income received by the borrower, which was passed on to the lender under the SLB arrangement, actually was an original interest or dividend which suffered a deduction of Swiss withholding tax of 35%. Such proof is required to demonstrate that the non-Swiss borrower actually held the security over the dividend or interest payment date (long borrowing), and that the security was not disposed of by the borrower prior to that date.

The FTA does not give any guidance as to the form such proof must take; it can be assumed, however, that it includes the original payment advice sent to the borrower for the dividend or interest received. Furthermore, the lender must disclose the SLB or REPO arrangement as well as the counterparty to that arrangement, as the payment advice received by the borrower does not show the lender's name, and would therefore be rejected by the FTA failing such disclosure. If there is a chain of SLB or REPO transactions, the entire chain must be disclosed to establish a link between the original payment advice showing the ultimate borrower's name and the ultimate lender filing for a refund. While a draft of the amended circular letter of the FTA contained an explicit requirement to disclose the entire chain of transactions, this did not find its way into the final version. However, it is difficult to conceive how the required proof could be established without disclosing the entire chain.


It is understandable that the FTA wants to tackle treaty-shopping situations by not acknowledging refund claims of claimants who are not beneficial owners of the dividends and interest in relation to which Swiss withholding tax was deducted. Attributing the right to a refund to the lender, rather than the borrower, therefore looks to be a means to achieve this objective.

However, it appears that the FTA has set the bar for successful refund claims by lenders too high. First of all, the lender needs to get its hands on the original payment advice received by the borrower, which can be difficult in practice, in particular where a chain of lenders is involved. Secondly, financial market participants who are active in borrowing and lending of securities often do not know the entire chain of transactions, at least where such transactions happen between unrelated parties; they would, therefore, not necessarily know the origin and destination of the securities, i.e. whether there will be other SLB or REPO transactions further up or down the chain. Due to banking secrecy and data protection laws, counterparties of a lender are generally not allowed to disclose the origin or destination of a security and the identity of their counterparties. As a result, it is likely that where there is a chain of transactions, the ultimate lender would find it challenging to provide the proof required by the FTA. Consequently, a successful filing of a refund claim appears to be unduly difficult.

Therefore, the new measures seem to be too burdensome to allow for a smooth refund of Swiss tax. They make it hard if not impossible for the parties, at the time of entering into an SLB or REPO transaction, to gauge the success of a Swiss refund claim, as neither the party entitled to such a refund, nor the expected percentage of the refund, can be predicted with certainty ex ante, since these questions depend on the behaviour of the participants after entering into the transaction (e.g.: Will the security be held by the borrower on the dividend or interest due date, or be sold on to a third party? Will the ultimate lender succeed in obtaining the necessary documentation from the last borrower down the chain who suffered the withholding tax on the original payment?). This unpredictability makes the pricing of such transactions difficult for all parties involved; at best, such trades, if entered into over dividend or interest due dates, can expect to be priced as if no Swiss tax refund were available. It can therefore be expected that the market for SLB and REPO transactions over Swiss securities, which has already slowed down over the past few years following the tightening of the FTA's practice, will remain lethargic, in particular where such transactions would extend over dividend or interest due dates.

Other aspects

In all other material aspects, the amended circular letter of the FTA remained largely unchanged:

–– Swiss resident borrowers still have the obligation to withhold a tax of 35% on any pass-on payments and manufactured dividends/interest to Swiss and non-Swiss lenders, calculated on the amount of the original dividend or interest (so-called "2nd withholding tax"). This 2nd withholding tax must be paid to the FTA, but can be netted with the refund claim for withholding tax on the original dividend/ interest. (In the authors' view, this 2nd withholding tax never had, and still has no foundation in Swiss statutory law, even though it represents widely accepted banking practice.)

–– Swiss lenders may claim a refund of this 2nd withholding tax on the basis of Swiss domestic law, while non-Swiss lenders can file such claim on the basis of applicable double taxation treaties.

–– In case of pass-on payments, Swiss borrowers have to issue a withholding tax statement to the lender, stating that this is a pass-on payment, referencing the underlying original dividend or interest, and showing the amount of 2nd withholding tax deducted.

–– There is no right or obligation of Swiss borrowers to withhold any foreign tax in relation to non-Swiss securities.

–– Pass-on payments are not eligible for Swiss participation relief, but are fully taxable if received by a Swiss corporate lender.

–– A transfer of securities under SLB or REPO arrangements is not subject to Swiss securities transfer tax.


The amended rules apply as of 1 January 2018. There is no grandfathering for SLB or REPO transactions entered into before 1 January 2018; the new rules therefore apply to all dividend or interest due dates as of 1 January 2018.

Open SLB and REPO contracts should be reviewed in the light of these amended rules. Where a lender becomes entitled to claim a refund under the amended rules, the necessary documentation should be requested and then obtained from the counterparties.

Contractual terms should be reviewed for any new contracts entered into, in particular in terms of pricing of the transaction as well as documentation and disclosure obligations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions