New York, December 10, 2024 – Switzerland’s Federal Tax Administration (“SFTA”) is under increasing pressure to reform or abolish its Securities Transfer Tax (“STT”), also known as the “stamp duty” – which applies to secondary interest transfers in private capital funds and hedge funds.
In general, Switzerland’s Securities Transfer Tax rate on secondary private transactions is 0.15% for Swiss sponsored private funds and 0.3% for foreign sponsored private funds when a Swiss securities dealer is involved. Swiss dealers include banks, broker-dealers, and other qualified institutions.
If the transferor and transferee are private individuals, but the private fund or the secondary transaction involves a Swiss dealer, then in general, the STT applies. The Swiss STT is calculated based on the secondary transaction’s value (i.e. the sale price to the transferee) and the tax burden is generally shared 50-50 and paid by each the transferor and transferee.
Penalties for not paying the Swiss STT may include (a) Interest on Late Payments, (b) Fines and Penalties which may range from 5% to 100% of the unpaid tax amount, (c) Criminal Charges in cases of serious or intentional evasion, (d) Corrective Measures on a party and (e) increased Tax Audits. It is important to comply with Swiss STT obligations or make voluntary disclosures if an error is discovered.
Pressure on the SFTA comes from pro-business lobbyists that argue the STT makes Swiss capital markets less attractive compared to other jurisdictions where securities transfer taxes do not exist. In addition, there is political pressure on the SFTA from business-friendly politicians that seek to attract more international trading activity to Switzerland. This is a timely debate as Switzerland seeks to attract blockchain and crypto-finance businesses. So far, the SFTA has not extended the Swiss STT to digital asset transactions.
The Swiss STT remains an important source of revenue for the Swiss federal government. Complete abolishment of the Swiss STT would require alternative revenue sources or spending cuts.
Parties to a secondary transaction in private funds should consult with their tax advisors regarding Swiss Securities Transfer Taxes.
For further information, please contact info@nyppex.com.
About NYPPEX Holdings
NYPPEX Holdings is one of the world’s leading providers of risk management solutions for the private capital funds industry. NYPPEX serves private fund managers, financial institutions, endowments, foundations, institutional investors, family offices, private clients and their respective advisors worldwide.
A NYPPEX Transfer Tax Opinion Letter may help sponsors of private capital funds and hedge funds avoid an adverse taxable event and fines in jurisdictions.
Since 2004, the NYPPEX QMS™ has been formerly recognized by the U.S. Internal Revenue Service though a private letter ruling under Internal Revenue Code §1.7704. A NYPPEX QMS Opinion Letter can help private capital funds meet the requirements of a QMS safe-harbor exemption under IRS §1.7704. This facilitates regulatory compliance with the IRS and helps avoid an adverse taxable event when private funds seek to permit higher volumes of secondary interest transfers annually.
