SWITZERLAND Law and Practice Contributed by: Daniel Haeberli and Simone Gloor, Homburger
granted to group companies that exceed certain levels of debt. The level of acceptable debt in relation to the equity capital of a Swiss company generally depends on the market value of the company’s assets (for example, for finance com- panies, the debt-to-equity ratio must not exceed 6:1). If the applicable threshold is exceeded, the interest payments for the portion of debt exceed- ing the threshold are no longer tax-deductible, and capital tax becomes due on the exceeding portion of the loan. In addition, when determining the interest rate on debt financings, it is important to ensure that it is on an arm’s length basis – ie, it must not exceed the maximum interest rates published annually by the Swiss Federal Tax Administra- tion. Failure to comply with this requirement will result in Swiss dividend withholding tax (current- ly levied at the rate of 35%) being levied on the interest payments if the loan has been granted by a parent or sister company. Neither maximum debt-to-equity ratios nor maximum interest rates apply to third-party debt. Due to these limita- tions on investor financing, third-party acquisi- tion financing prevails over investor financing in practice. Under Swiss corporate law, a company whose liabilities exceed its assets must take measures to restore its balance sheet. In particular, if the claims of the company’s creditors are no longer covered (based on either the company’s going- concern value or the liquidation value of its assets), the company’s board of directors must notify the competent bankruptcy judge, unless some of the company’s creditors agree to sub- ordinate their claims to those of the company’s other creditors. There are no specific shareholder liability issues in relation to thin capitalisation or restrictions on
debt financing under Swiss law. Shareholders are only obliged to pay the subscription amount. There has been considerable debate regarding the potential conversion or recharacterisation of a loan from a parent company to a subsidiary into equity, particularly when the subsidiary is undercapitalised. However, Swiss courts and prevailing doctrine have so far not supported such a conversion or recharacterisation based solely on a company’s thin capitalisation. Swiss law currently does not prohibit or restrict foreign investors from acquiring a Swiss busi- ness in order to safeguard public order or nation- al security. However, on 15 December 2023, the Swiss government published a draft Investment Control Act, presenting a minimal solution with a significantly reduced scope of application. According to the draft, acquisitions of Swiss businesses will only be notifiable if: • a foreign state investor acquires control; • a (security-)critical sector is involved; and • certain de minimis or turnover thresholds are exceeded. 9. Takeover Finance 9.1 Regulated Targets The draft Investment Control Act is currently being reviewed by the Swiss Parliament and its consultation committees, and further amend- ments to the draft have been proposed. There- fore, it is not expected to come into force before 2028. In addition, there are specific restrictions on the acquisition of nuclear power plants and Swiss residential real estate companies. There are also restrictions for Swiss banks, securities dealers, fund management companies, asset managers,
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