IFF-HSG Working Papers – No. 2021-4

This thesis examines whether the OECD/G20 BEPS Action 4 and the EU Anti-Tax Avoidance Directive have impacted Switzerland’s domestic thin capitalisation rules as well as how such thin capitalisation rules should be designed from a tax policy perspective. Regarding the first aspect, Switzerland has not adopted and, as far as it can be observed, has not intended to adopt any change to its current thin capitalisation rules to be in line with the international developments. Regarding the second aspect, the author is of the opinion that Switzerland should not introduce an interest limitation rule pursuant to the OECD/G20 recommended approach. Indeed, such a rule would restrict the freedom of financing, reduce legal certainty, harm the attractiveness of Switzerland and have only limited effects on fighting BEPS. According to the Swiss safe haven practice, the tax authorities assume excessive debt capital to the extent that the debt originating from shareholders or persons related to them exceeds the admissible debt capital calculated with given asset/debt ratios.

The author shows that such practice is not in line with the legal wording of the Swiss thin capitalisation rules. Following a substance over form approach, the relevant articles require from the debt capital to have the economic functions of equity to justify a tax reclassification as deemed equity. Therefore, in order to achieve compliance, the author proposes to implement the current practice in the law de lege ferenda.