SWITZERLAND Law and Practice Contributed by: Francis Nordmann, Johannes Bürgi, Christian Eichenberger and André Kuhn, Walder Wyss Ltd
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 bound by such contractual arrangements as well. 3.8 Lenders’ Liability Under Environmental Laws Generally, lenders that merely financed a prop - erty will not become liable under environmental laws but the borrower may become liable, which may have an indirect effect on the financing and potential enforcement scenarios. 3.9 Effects of a Borrower Becoming Insolvent If a borrower becomes insolvent, security grant - ed by a Swiss borrower will not become void automatically. It should be noted, however, that Swiss law knows the concept of avoidance actions, providing for hardening periods of one to five years. Upstream and cross-stream secu - rities may also be limited in value. Enforcement actions may become the subject of official pro - ceedings run by the court or insolvency admin - istrator. 3.10 Taxes on Loans For foreign investors, Swiss tax law imposes a source tax on interest payments on loans, which are secured with a mortgage lien/pledge on a Swiss property. The tax is 3% at the federal lev - el. Cantonal and communal tax is also triggered, at rates of between 10% and 30%, depending on the location. This source tax may be reduced or even avoided if treaty protection can be
achieved under a double tax treaty. Moreover, if a loan qualifies as a bond under withholding tax aspects, Swiss withholding tax of 35% is trig - gered on interest payments. Withholding tax can be reduced or even avoided if such is permitted by an applicable tax treaty. 4. Planning and Zoning 4.1 Legislative and Governmental Controls Applicable to Strategic Planning and Zoning In Switzerland, regulatory responsibilities are shared among various authorities at the federal, cantonal and municipal levels. Pursuant to Arti - cle 75 of the Swiss Constitution, the Confedera - tion shall lay down principles on spatial plan - ning, which are binding on the cantons. Except for some specific regulations at federal level, zoning and building regulations are enacted by the cantons and implemented by the municipal building authorities. Accordingly, there are 26 different cantonal zoning and building regimes. Any construction project and any change to an existing building or construction is subject to a building permit from the competent (typically local) authority. 4.2 Legislative and Governmental Controls Applicable to Design, Appearance and Method of Construction Design, appearance and construction method requirements vary by zones. Typically, specific dimension and distance regulations apply. Build - ings and land under cultural heritage protection or nature conservation areas are subject to par - ticularly strict regulations. 4.3 Regulatory Authorities Building permits must usually be obtained from the municipal authority where the project is
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