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Swiss Securities Transfer Tax - Home - Ernst & Young - Schweiz

Swiss Securities

S WISS S TAMP T AX

Transfer Tax

FALL 2002

Ernst & Young Ltd

Tax Consulting

59, route de Chancy

P.O. Box

CH-1213 Geneva

Phone +41 58 286 56 56

Fax +41 58 286 56 57

www.ey.com/ch

FINANCIAL SERVICES


S WISS S ECURITIES T RANSFER T AX

Table of contents

1 SCOPE OF THIS PUBLICATION ................................... 3

2 DEFINITIONS AND BASIC PRINCIPLES................ 4

2.1 Basic Principle...................................................................................... 4

2.2 Taxable Securities ................................................................................ 4

2.3 Swiss Securities Dealer ........................................................................ 4

2.4 Duty to register ..................................................................................... 6

3 TAXABLE TRANSACTIONS AND TAX RATES 7

3.1 Tax assessment and remittance............................................................. 7

3.2 Exemptions from transfer tax ............................................................... 8

3.2.1 Subjective Exemptions ......................................................................... 8

3.2.2 Objective exemptions ......................................................................... 10

4 SUMMARY OF APPLICABLE RULES..................... 13

4.1 Transactions in Swiss securities ......................................................... 13

4.2 Transactions in foreign bonds (“Eurobonds”).................................... 14

4.3 Transactions in foreign shares and foreign investment fund units ..... 15

5 CONTACTS................................................................................ 16

5.1 In Geneva............................................................................................ 16

5.2 In Zürich ............................................................................................. 16

© 2002 ERNST & YOUNG L TD 2/17


S WISS S ECURITIES T RANSFER T AX

1 Scope of this publication

This brochure sets out the most important regulations pertaining to the Swiss

securities transfer tax (“Umsatzabgabe”/”droit de timbre de négociation”),

which is a part of the stamp taxes levied by the Swiss federation on certain

securities transactions.

During the recent years financial markets and the products traded in this area

have shown an accelerated growth in both, dissemination and complexity.

The degree of product sophistication, the convergence of financial markets,

and, associated with this, the tendency for national stock exchanges to form

cross-border platforms for trading operations often prevented national laws

and regulations from keeping pace. As a consequence, national regulations,

too, have grown more complex in the recent years in order to be able to

accommodate the more complex economic reality.

The aim of the brochure is therefore to provide an overview in short form and

set out the relevant regulations. It should not be understood as giving advice

on specific transactions.

Stamp taxes are regarded as taxes on the transfer of rights, i.e. they are

imposed on certain legal and economic transactions. In practice, the taxes are

assessed according to very formal criteria. In connection with the appraisal of

the tax consequences of a certain transaction it is, therefore, of paramount

importance to determine exactly how the transaction was executed. Hence,

the first part of the brochure provides a number of definitions which will be

used later on.

This brochure is restricted to the securities transfer tax since this is the most

significant tax in connection with the trading activities performed by finance

companies and banks. It does not cover the issuance tax (“Emissionsabgabe”/

“droit de timbre d'émission”) which forms the other part of the Swiss stamp

taxes.

The contents of this brochure are based on the amendments of the Federal

Stamp Tax Act as per January 2001.

© 2002 ERNST & YOUNG L TD 3/17


Transfer tax is levied

on the transfer of

taxable securities

against consideration

with at least one

securities dealer

involved either in a

principal capacity or

as a broker.

S WISS S ECURITIES T RANSFER T AX

2 Definitions and basic principles

In order to fully understand the “modus operandi” of the Swiss transfer tax it

is necessary to introduce a number of definitions which are based on the

pertinent regulations provided in the Federal Stamp Tax Act (hereinafter

“STA”).

2.1 Basic Principle

Transfer tax is levied (i) on the transfer of (ii) taxable securities (iii) against

consideration if (iv) at least one of the parties involved in the transaction—

acting as either an intermediary/broker or as principal—is a Swiss securities

dealer in the sense of the STA and provided no exemption case is given.

The transfer of the securities must lead to a transfer of legal ownership. As a

corollary, the transfer of a security for deposit or safekeeping is not subject to

tax. In addition, in the absence of a consideration paid for the transferred

securities no tax will become due.

2.2 Taxable Securities

The term taxable securities encompasses the following types of securities

regardless whether the issuer has its legal domicile in Switzerland or abroad:

a) Debentures, bonds, cash bonds (bank-issued medium term notes),

annuity bonds, certificates of deposits;

b) Shares in joint-stock companies (“AG”/”SA”), limited liability

companies (“GmbH”/”Sàrl”) and co-operative corporations as well as

profit sharing certificates and participation certificates;

c) Shares in investment funds;

d) Certificates evidencing subparticipations in the instruments listed

under (a) to (c) above.

2.3 Swiss Securities Dealer

Any of the following persons or corporate entities qualifies as a Swiss

securities dealer according to the STA. Once the person or corporate entity

falls within one of the following categories it is obliged to register with the

federal tax authorities on its own initiative.

© 2002 ERNST & YOUNG L TD 4/17


Pension funds newly

became liable to

stamp tax in 2001.

S WISS S ECURITIES T RANSFER T AX

a) Banks and bank-like finance companies in the sense of the Federal

Banking Law and the Swiss National Bank;

b) Individuals, corporate entities and partnerships as well as domestic

branches of foreign enterprises that do not fall within the scope of a)

above and whose activities encompass exclusively or substantially the

trading of securities on third parties’ account or brokering such

securities as portfolio managers (“intermediaries”);

c) Share corporations, limited liability companies and co-operative

corporations whose assets, as per the last balance sheet, consist of

taxable securities in excess of CHF 10 million;

d) Remote members of the SWX, however only in respect of shares

issued by a Swiss party, which are traded at SWX;

e) Domestic institutions for the occupational old age insurance (socalled

“second pillar” institutions) if they own more than CHF 10

million in taxable securities. This can be personnel welfare

institutions and pension funds, security funds, suppletory institutions,

vested institutions and investment foundations in the sense of the

Federal Act on the Occupational Old Age, Survivor’s and Disability

Benefit Plan (“BVG”/”LPP”);

f) Domestic personal old age benefit plans (so-called “third pillar A”

institutions) provided they own more than CHF 10 million of taxable

securities. These essentially encompass bank and insurance

foundations providing recognised forms of personal old age insurance

and saving plans;

g) The Swiss Confederation, political municipalities as well as the

institutions of the public old age and disability insurance and the

compensation funds of the unemployment insurance, collectively

known as the “first pillar institutions” of the social security system.

Domestic investment funds and their fund management companies, which

used to qualify as securities dealers before the amendments of January 2001,

are no longer considered as securities dealers (see section “Exemptions from

transfer tax”).

However, with the new regulations entered into force as of January 2001, the

legislator has extended the scope of entities, which qualify as securities

dealers. Basically, also domestic social security entities have to register as

Swiss securities dealers as from 2001 and have to comply with all register

© 2002 ERNST & YOUNG L TD 5/17


S WISS S ECURITIES T RANSFER T AX

and remittance duties which the law imposes on them. However, these

entities have the option to delegate the duties to their banks and brokers. By

simply not disclosing their status as securities dealers to their banks or

brokers the latter are required to charge the transfer tax as applicable.

Notwithstanding this option to delegate the duties, the securities dealers still

remain subject to register all transactions and remit transfer taxes on trades

closed between themselves and other parties without interposing a bank or a

broker (e.g. one pension fund trades securities directly, i.e. without the

support of a broker, with another pension fund).

In this connection it is important to note that the definition of a “securities

dealer” according to the STA is not congruent with the definition provided by

the stock exchange and securities dealer law.

2.4 Duty to register

Any person that qualifies as a securities dealer under the above definitions is

obliged to register with the Federal Tax Authorities on its own initiative

before it becomes liable to levy transfer taxes. The liability to levy transfer

tax usually starts with taking up the business of a securities dealer. For

corporate entities with assets consisting of taxable securities in excess of

CHF 10 million, the liability to levy tax begins six months after the end of the

business year during which the CHF 10 million threshold has been exceeded.

© 2002 ERNST & YOUNG L TD 6/17


Whilst not all

conceivable

transactions will be

covered in this

brochure, those of

material importance

to banks and

financial

intermediaries will be

presented.

S WISS S ECURITIES T RANSFER T AX

3 Taxable transactions and tax rates

3.1 Tax assessment and remittance

Generally speaking, the Swiss securities dealer involved in the transaction as

principal or as a broker is obliged to charge and remit ½ of the transfer tax for

every counterparty or customer that fails to identify itself as a Swiss

securities dealer unless the counterparty is explicitly exempted. The

identification of the securities dealers takes place by exchanging so-called

securities dealer’s cards among each other. Such cards are distributed by the

Federal Tax Authorities and a detailed list of the cards forwarded by a

securities dealer must be maintained.

If the securities dealer acts on his own accounts he is obliged to pay ½ of the

transfer tax for himself (unless the securities dealer is allowed to carry a socalled

trading account, which is exempted; see section “Exemptions from

transfer tax”).

The transfer tax is calculated on the consideration paid for such a transfer and

amounts to 0.15% (or 15 basis points 1 ) for domestic securities (i.e. issued by

a Swiss resident party regardless of the currency denomination) and to 0.30%

(or 30 bps) for foreign securities (i.e. issued by a non-Swiss resident party).

Whilst it is incumbent on the securities dealer to remit the tax to the federal

tax authorities, the STA does not provide that the securities dealer is actually

obliged to charge the transfer tax on to its counterparty or customer.

However, in the vast majority of all cases a charge will be effected.

The tax liability arises at the time of closing of the transaction. If the

transaction encompasses an optional right (which is typically given in the

case of options) the tax liability arises at the later time of exercise of the

option right. The tax payment becomes due and must be remitted to the

federal tax authorities 30 days after the end of the calendar quarter year in

which the closing of the transaction took place using a designated form.

For this purpose, the securities dealer must maintain a so-called trading

journal. All trades – unless exempted – must be filed in this journal three

working days after the transaction has been closed at the latest 2 . The values in

1 One basis point equals 0.01%.

2 However, all brokerage transactions in foreign bonds and debentures, albeit exempted on their foreign

leg, must be listed in the trading journal.

© 2002 ERNST & YOUNG L TD 7/17


A list of Swiss

investment funds

and foreign funds

licensed for

distribution within

Switzerland can be

found on:

www.ebk.admin.ch/e

/societe

S WISS S ECURITIES T RANSFER T AX

the trading journal, aggregated over a calendar quarter, serve as the basis for

the tax remittance to the tax authorities.

3.2 Exemptions from transfer tax

Before some specific transactions will be considered it is important to

understand that certain transactions do not trigger transfer taxes and that

certain parties have explicitly been exempted from transfer tax. The 2001

revision of the STA encompasses two different kinds of exemption, a

subjective and an objective one:

3.2.1 Subjective Exemptions

The following so-called “institutional investors” are exempt from transfer

tax. This means that a Swiss securities dealer, which enters into a transaction

with one of the following institutional investors does not have to account for

transfer tax on the leg of the transaction between itself and such exempted

investor:

a) Foreign public authorities

Only the central government is exempted; other political subentities,

such as federal states, communes and cities are not exempted.

b) Foreign central banks

The statutory purpose of such an exempted central bank must be to

fulfil the duties pertaining to the monetary and currency policy of the

respective country.

c) Swiss investment funds

All Swiss investment funds which are subject to the Swiss Investment

Fund Act are considered as exempted investors.

d) Foreign investment funds

Foreign investment funds are exempted provided that they qualify as

a “foreign investment fund” pursuant to the definition of article 44 of

the Investment Fund Act. The Federal Tax Authorities have issued

some more detailed definitions in this respect.

e) Foreign social security entities

These exempted investors are defined by reference to the Swiss old

age and survivors insurance (“AHV”/”AVS”) and compensation

funds of the unemployment insurance (“ALV”/”AC”). These foreign

institutions must be comparable to the Swiss “first pillar” institutions

© 2002 ERNST & YOUNG L TD 8/17


S WISS S ECURITIES T RANSFER T AX

and be subject to public supervision.

f) Foreign old age benefit plans

Foreign institutions aiming at providing old age benefits are exempted

provided that their funds can exclusively be used for that purpose and

that they are subject to public supervision in their home country.

Basically, these are institutions similar to the “second” and “third

pillar” institutions in Switzerland.

The onus of proof that the counterparty is actually exempted resides

with the Swiss securities dealer. However, since it can be expected

that most of the foreign social security institutions as well as the

foreign old age benefit plans will use brokers in their home country it

might become difficult to substantiate that the ultimate foreign

counterparty actually qualifies for the exempted status.

g) Foreign life insurance companies

Foreign life insurance companies are exempt from transfer tax if they

are subject to regulations in their home country similar to Swiss rules.

For a transaction concluded with a foreign life insurance company to

be exempted from transfer taxes, the Swiss securities dealer must be

able to furnish proof that the trade has actually been made for the

accounts of the foreign life insurance company.

h) Swiss members of a foreign exchange

Under the current rules, when a Swiss securities dealer closes a

transaction with a foreign bank or broker involving Swiss securities,

transfer tax is due. This would have caused problems with the start of

virt-x, since Swiss securities were to be traded on a foreign exchange.

In order to avoid that Swiss members of virt-x are liable to transfer

tax each time they trade Swiss shares on this platform (and hence be

disadvantaged compared to their foreign competitors), a new

exemption has been introduced for Swiss members of foreign

exchanges.

Under this new provision, if a Swiss securities dealer trades Swiss (or

foreign) securities on a foreign exchange, no transfer tax would be

due on the leg of the transaction between the Swiss securities dealer

and the foreign counterparty. However, the exemption is contingent

on two conditions:

• The Swiss securities dealer must be a registered member of

the foreign stock exchange and

© 2002 ERNST & YOUNG L TD 9/17


S WISS S ECURITIES T RANSFER T AX

• The securities must have actually been traded at that foreign

stock exchange. This second condition applies to on-exchange

trades (in case of virt-x: “order book trades”) as well as to offexchange

trades and own-name transactions (“off order book

trades”) provided the latter must be reported to the foreign

exchange based on the pertinent rules and regulations of such

foreign exchange.

i) Remote Members of SWX

If a remote member of SWX transacts with an exempted party – as

described above – the same rules apply as for a Swiss securities

dealer. This means that the remote member does not need to account

for transfer taxes if its customer is an exempted party.

3.2.2 Objective exemptions

The following transactions are exempted from Swiss transfer taxes as well:

a) Exemption of the trading account

Banks and professional brokers which qualify as Swiss securities

dealers can benefit of a transfer tax exemption with respect to their

trading account. These parties are exempt from the tax pertaining to

them to the extent they sell securities out of their trading account and

they acquire securities to increase the trading account. While banks

can carry a trading account per se, professional brokers other than

banks have to file an application evidencing that they act as market

makers on a regular basis with a greater circle of counterparties.

On the other hand, all securities representing long-term participations,

and all securities which are encumbered (such as serving as a

collateral for a loan) cannot be carried in the trading account. A

transfer of securities from the trading account to the investment

account and vice versa triggers transfer taxes in the same way as

would a transaction with a non-securities dealer.

b) Issuance of Swiss securities and primary market transactions

The issuance of corporate shares, shares in limited liability companies

and co-operative corporations, participation certificates, shares in

investment funds 3 , debentures and money market papers including the

firm underwriting by a bank and the allocation of the securities in a

3 However, the issuance of foreign investment fund shares into Switzerland is subject to Swiss transfer

tax at the usual rates applicable to foreign securities.

© 2002 ERNST & YOUNG L TD 10/17


S WISS S ECURITIES T RANSFER T AX

subsequent issue are exempt from transfer tax.

c) Cross border brokerage of foreign debentures (“Eurobonds”)

Acting as a broker in a transaction involving foreign debentures

(irrespective in which currency these bonds are denominated)—socalled

“Eurobonds”—is exempted from transfer tax to the extent the

counterparty is a foreign entity or person. By way of example: if a

Swiss bank acts as a broker in foreign debentures between a UK

resident company (as counterparty) and a private Swiss investor (as

the bank’s client) the leg of the transaction involving the foreign

counterparty is exempted while the Swiss client will be charged ½ of

the transfer tax (i.e. 15 bps).

d) Transfer of subscription rights and options

The transfer of subscription rights, warrants and options is exempted

from transfer taxes. However, if a warrant or an option is exercised,

transfer tax becomes due on the exercise price which is regarded as

the consideration for the transfer. Only in case of so-called LEPOs

(low exercise price options, also referred to as zero-strike price

options) would the market value of the shares be taken as the

consideration instead of the exercise price.

e) Return of securities for redemption

If the redemption takes place for the purpose of cancelling the

securities no transfer tax is levied. However, it is then imperative that

the settlement advice must clearly state the purpose of the redemption

and the actual cancellation must be evidenced upon the tax

authorities’ request.

f) Trade in Swiss and foreign money market papers

Money market papers are Swiss or foreign debentures with a maturity

of less than one year irrespective of their currency denomination.

g) Transactions with foreign banks or brokers in foreign securities

If a Swiss securities dealer concludes a transaction with a foreign

bank or broker involving foreign securities no transfer tax would be

due on the leg of the transaction between the Swiss securities dealer

and the foreign bank/broker. However, if Swiss securities are subject

to the transaction ½ of the transfer tax (i.e. 7.5 bps) pertaining to the

foreign counterparty is due regardless of whether the transaction was

concluded in Switzerland or abroad (except for Swiss securities traded

at foreign exchanges; see para. 3.2.1 (h) above).

The term “foreign bank or broker” basically encompasses all banks

© 2002 ERNST & YOUNG L TD 11/17


S WISS S ECURITIES T RANSFER T AX

which are fully subject to public supervision in their home country

and provided that they actually exert a banking activity in such home

country using own personnel and premises. Foreign brokers must

either be an active exchange member in their home country or—if

they are not an exchange member—essentially perform the same

activities as a broker using own personnel, premises and infrastructure

and perform their activity on their own competence. By contrast, all

domiciliary companies (“letter box companies”), finance and holding

companies as well as private persons do not qualify as “foreign banks

or brokers”.

h) Delivery of Swiss securities upon exercise of derivatives

The issuance and trade of derivative products is not subject to Swiss

securities transfer tax whereas the delivery of securities upon exercise

of such derivatives can be subject to securities transfer tax. An

exemption to this rule applies when Swiss securities are delivered to

or acquired from an institutional recognised exchange (acting as a

counterparty) pursuant to the exercise of a standardised option or

derivative contract.

If, for example, a securities dealer exercises options traded at Eurex,

the transfer tax for Eurex is not due upon delivery of the securities.

On the other hand, the transfer tax for the customer is basically due,

provided no other exemption applies.

© 2002 ERNST & YOUNG L TD 12/17


Abbreviations used:

SWX: Swiss Stock

Exchange

a/c: Account

½: One half of the

transfer tax

1: Full amount of

the transfer tax

0: No transfer tax

Nostro:Securities

Dealer transacts

on its own

account

S WISS S ECURITIES T RANSFER T AX

4 Summary of applicable rules

The following charts shall serve as a summary of the transfer tax rules

applicable as of January 2001 for the transactions encountered by a Swiss

securities dealer. As pension funds and old age benefit entities will also

qualify a securities dealer, they will have to levy tax as show below and are

therefore not shown on the customer side.

4.1 Transactions in Swiss securities

The following chart shows the transfer tax due by a Swiss securities dealer

when trading Swiss securities. The full transfer duty equals 15 bps, i.e. “1/2”

means 7.5 bps.

Counterparty

Swiss

securities

dealer

Foreign bank

or broker

SWX remote

member

Foreign stock

or derivatives

exchange

0

1/2

0

0

Swiss

securities

dealer

1/2

1/2

0

0

0

Customer

Swiss private

customer

Foreign private

customer

Foreign

institutional

investor

Swiss / foreign

investment

funds

Trading a/c

For securities listed at the SWX

For securities traded at the foreign exchange or securities

1/2 Investment a/c

delivered upon excercice of standardized derivatives traded at that exchange

Figure 1: Transactions in Swiss securities (shares, bonds, and shares in investment

funds)

© 2002 ERNST & YOUNG L TD 13/17

C l i e n t P o s i t i o n

Nostro Positions


S WISS S ECURITIES T RANSFER T AX

4.2 Transactions in foreign bonds (“Eurobonds”)

The following chart shows the transfer taxes due by a Swiss securities dealer

when trading foreign issued bonds (so-called “Eurobonds”; see section

“Exemptions from transfer tax”, specifically exemption no. c)). Whilst the

currency of the bond is of no relevance, the issuer needs to be a non-Swiss

entity in order to benefit from the foreign bond exemption. The full transfer

tax equals 30 bps, i.e. “1/2” means 15 bps.

Counterparty

Swiss

securities

dealer

Foreign bank

or broker

SWX remote

member

Foreign stock

or derivatives

exchange

0

0

0

0

Swiss

securities

dealer

Figure2: Transactions in foreign bonds ("Eurobonds")

1/2

0

0

0

0

1/2

Customer

Swiss private

customer

Foreign private

customer

Foreign

institutional

investor

Swiss / foreign

investment

funds

Trading a/c

Investment a/c

© 2002 ERNST & YOUNG L TD 14/17

C l i e n t P o s i t i o n

Nostro Positions


S WISS S ECURITIES T RANSFER T AX

4.3 Transactions in foreign shares and foreign investment fund units

The following chart shows the transfer tax due by a Swiss securities dealer

when trading foreign shares or foreign investment funds units. The full

transfer tax equals 30 bps, i.e. “1/2” means 15 bps.

Counterparty

Swiss

securities

dealer

Foreign bank

or broker

SWX remote

member

Foreign stock

or derivatives

exchange

0

0

0

0

Swiss

securities

dealer

Figure 3: Transactions in foreign shares and investment fund units

1/2

1/2

0

0

0

1/2

Customer

Swiss private

customer

Foreign private

customer

Foreign

institutional

investor

Swiss / foreign

investment

funds

Trading a/c

Investment a/c

© 2002 ERNST & YOUNG L TD 15/17

C l i e n t P o s i t i o n

Nostro Positions


S WISS S ECURITIES T RANSFER T AX

5 Contacts

For more information, please contact any of the following person:

5.1 In Geneva

Kim H. Nguyên

Tel: 058 286 56 37

Fax: 058 286 59 47

Kimhai.nguyen@ch.ey.com

Bernhard Schopper

Tel: 058 286 55 07

Fax: 058 286 59 47

bernhard.schopper@ch.ey.com

5.2 In Zürich

Hans-Joachim Jaeger

Tel: 058 286 31 58

Fax: 058 286 31 93

hans-joachim.jaeger@ch.ey.com

Giuseppe Giglio

Tel: 058 286 44 56

Fax: 058 286 31 93

Giuseppe.giglio@ch.ey.com

© 2002 ERNST & YOUNG L TD 16/17


FALL 2002

S WISS S ECURITIES T RANSFER T AX

ERNST & YOUNG

© 2002 Ernst & Young

All Rights Reserved.

Ernst & Young is

a registered trademark.

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© 2002 ERNST & YOUNG L TD 17/17

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