SWITZERLAND Law and Practice Contributed by: Francis Nordmann, Johannes Bürgi, Christian Eichenberger and André Kuhn, Walder Wyss Ltd
agreement, LTV below 80%, etc) should not usu - ally raise concerns. If there is any uncertainty, Lex Koller ruling confirmations are available from the competent cantonal authorities for individu - al cases; for formal reasons, the Swiss Federal Office of Justice no longer seems to be willing to issue general letter confirmations on covered bond programmes or the like, for example, but has not changed its general view on the permis - sibility of such structures. It would be desirable – de lege ferenda – for the legislator to exempt such financing transactions from the applicabil - ity of the Lex Koller legislation in the first place, to further enhance legal certainty for debt capital market transactions and novel origination struc - tures that will rather involve lenders other than Swiss banks. 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security Small registration fees apply to the registration of holders of a mortgage note in the creditor reg - ister ( Gläubigerregister ) of the competent land registry. However, such registration is only a perfection requirement for the mortgage secu - rity in case of a registered mortgage note ( Reg- isterschuldbrief ). For a mortgage note in paper form ( Papierschuldbrief ), such registration rather serves administrative purposes. There are special withholding taxes on interest payments at both federal and cantonal levels, to the extent foreign lenders are involved. A refund of the Swiss source tax (or reduction at source) will be subject to any applicable double taxa - tion treaty protection. General federal withhold - ing tax on interest payments may also have to be considered, depending on the exact funding structure (banks, non-banks, double taxation treaties, etc). Depending on the location of the property, transfer taxes might apply to the direct and indirect transfer of a Swiss property. Real
estate capital gains are taxed either by special real estate capital gain taxes (RCGT) or by ordi - nary income taxes (this varies from canton to canton). Ordinary notarial and land registry fees will apply. Finally, it is always recommended to keep an eye on Swiss VAT aspects as well (with respect to transfers of Swiss real estate but also with respect to deemed servicing fees, etc). 3.5 Legal Requirements Before an Entity Can Give Valid Security Under Swiss corporate and tax laws, finan - cial assistance and corporate benefit rules will apply to any upstream or cross-stream security, guarantee or joint liability. The rules are rather detailed and complex but, in a nutshell, the value of any such “impaired” security will be limited to freely distributable reserves (that could be paid out as a dividend) of the Swiss company in ques - tion, subject to general Swiss federal withhold - ing tax of 35%, if applicable. 3.6 Formalities When a Borrower Is in Default The Swiss enforcement process is a court-guid - ed process, the timing of which will very much depend on the behaviour of the borrower in question. However, in larger transactions, private sale mechanisms are often agreed contractually to avoid a lengthy process and a public auction with associated higher costs. 3.7 Subordinating Existing Debt to Newly Created Debt The subordination of existing debt to newly cre - ated debt is generally possible and frequently done, even though there are some residual uncertainties around the enforceability of such arrangements in the insolvency of the borrow - er. However, the general view of legal scholars is that Swiss insolvency administrators will be
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