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13.2.3. Interest Deduction Strategies

Interest paid on hidden equity to related parties is in general not tax deductible. As such interest on hidden equity is considered to be a deemed dividend distribution, it is also subject to Swiss withholding tax.

Interests paid to related parties should in general be at arm’s length. They might not be considered tax deductible if they exceed the safe harbor rates yearly published by the tax authorities and are treated as hidden dividend distribution subject to withholding tax.

The introduction of the deductibility of a deemed interest on equity in the course of Swiss corporate tax reform III (around 2020) is considered. However, so far no such interest deduction strategies exist.