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11.3. Change of Foreign Ownership in Swiss Legal Entities

In case the foreign ownership of a Swiss legal entity changes, the so-called old reserves doctrine established by the Swiss tax authorities need to be considered. This doctrine applies to retained earnings subject to a withholding tax of more than 0%. If, due to a change in ownership, the net withholding tax after relief granted under a double tax treaty would be reduced to a lower rate than before the transaction, the Swiss tax authorities may argue that the distributable reserves are still earmarked at a higher withholding tax rate and that, in the event of a future dividend distribution, they would grant a refund up to this higher rate only. The amount subject to the previous withholding tax rate is usually the lower of retained earnings and the non-business relevant assets at the time of the change in ownership.