The FTA has updated the circular on hidden equity for the first time in over 25 years. Following is an overview:
Philip Brüllmann
Junior Tax Consultant
Dr. Samuel Bussmann
Tax & Legal Partner
Christina Stocker
Senior Tax Advisor
Circular no. 6 of June 6th 1997 on hidden equity of corporations and cooperatives was replaced by circular no. 6a on October 10th 2024. The Federal Tax Administration (‘FTA’) completely removed the explanations on capital tax, while they added the jurisprudence of the Federal Supreme Court. Also, it was explicitly stated that circular no. 6a also applies to withholding tax.
The circular has been updated to reflect the current legal situation. The references in the old circular to articles that are no longer valid (mainly references to Art. 75 DBG (direct federal taxation act)) have been removed. All explanations on capital tax have also been removed.
The explanations to determine the hidden equity (see point 2 of the circular) have been supplemented with the case law of the Federal Supreme Court. It is now stated that appropriate account can be taken of any changes in market value or inventory within a tax period. The Federal Supreme Court's interpretation of Art. 65 DBG and Art. 29a StHG (Federal Act on the Harmonisation of Direct Taxes of the Cantons and Municipalities) is also applied with the explanation that the hidden equity must be determined in functional currency (see judgement 2C_560/2014 of 30.09.2015, E.3.4.1).
The names of the various items have been slightly adjusted in the list of maximum amounts of authorised borrowed capital, while the percentages themselves have remained unchanged.
It is now explicitly stated that interest expenses attributable to the hidden equity is also subject to withholding tax in accordance with Art. 4 para. 1 lit. b VStG (Federal Act on Withholding Tax) (see Section 3.2 Circular No. 6a of the FTA). Repayments of hidden equity are not subject to withholding tax or income tax, as the repayment does not represent a monetary benefit from the company to its shareholders.
The circular came into force with its publication on October 10th 2024.
