CMS Expert Guide on substance issues across Europe in Switzerland

Under domestic Swiss tax law, a legal entity becomes subject to unlimited Swiss tax liability if it has (i) its statutory place of incorporation and/or (ii) its place of factual management in Switzerland. Therefore, it is not necessary to establish any unilateral substance rules from a Swiss perspective. In contrast, the Swiss tax authorities apply very strict substance rules when reviewing the acceptance of foreign structures with a Swiss nexus and frequently deny the recognition of the shielding effect under the concepts of tax avoidance, piercing the corporate veil or beneficial ownership considerations. In particular, foreign multinational groups and family offices with a Swiss (intermediary) holding company should therefore review the local substance with a view to the enactment of ATAD 3.

A company will be considered as tax resident in Switzerland if it has its registered office (as designated in the company’s articles of incorporation), or ‘place of effective administration’ in Switzerland. This is the place where the company is managed and controlled. In practice, this is determined by the location where the daily business decisions take place, but may vary depending on the activity of the company.

With a view to claiming title to double tax treaty benefits by a Swiss company, the so-called Anti-Abuse Decree 1962 (Ordinance on Measures against the unjustified use of Federal Double Taxation Agreements) enacted by the Swiss Federal Council stipulated certain substance criteria in order to prevent shell companies from abusing Swiss double tax treaties. The Anti-Abuse Decree 1962 has been abolished as per 1 January 2022 with a view to the newer BEPS regulations.

With a view to indirect effects on Swiss companies and general sustainability of the structure, the following general substance recommendations should be followed:

• The majority of board members should be Swiss residents
• The board members should have independent decision-making power (no rubberstamping)
• The company should have qualified employees in Switzerland
• The daily management decisions should be taken in Switzerland
• The company should hold its board meetings and annual shareholder meetings in Switzerland
• The company should dispose of its own infrastructure adequate for its purposes
• The company should maintain its books and bank accounts in Switzerland
• The company should dispose of adequate equity (in line with the Swiss thin cap provisions)

At present, none. The issue of shell companies is dealt with at the level of criminal law and leads to regular verifications by the authorities in a wider context then tax law.

At least one Swiss resident director with sole signature power required for corporate law purposes.

There are no specific provisions which require a company to have premises in Switzerland. However, a registered address is required for purposes of the incorporation. If a company does not dispose of its own infrastructure at its registered address, it must designate it as a c/o address. See also reference to criminal law under ‘Activities’.

There are no specific provisions which require a company to have a local bank account. However, having a bank account with a Swiss financial institution, which is used for day-to-day management, is normally recommended.

At present, none.

Depending on the issue in question (claiming treaty benefits, attributing income to a foreign affiliate, relying on unilateral exemptions etc.), the Swiss tax authorities apply very strict substance tests which considerably exceed the prospective ATAD 3 requirements under the concept of abusive structuring (tax avoidance).

Switzerland is not part of the EU and there is no initiative currently to implement ATAD 3 or similar measures into Swiss law.