The test begins with market values at the end of the tax period; absent evidence of higher values, accounting or profit-tax values are used.
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ESTV Kreisschreiben Nr. 6a · Editorial explanation
Hidden Equity: ESTV Circular 6a
Circular 6a took effect on publication and replaced Circular 6 of 6 June 1997. The text below is an independent explanation, not an official translation.
Key takeaways
Key takeaways
This material explains the official publication without reproducing it and is not an official translation or individual advice. Current legislation, cantonal practice and the facts must be checked before application.
The circular provides maximum third-party debt ratios by asset class; for finance companies the general benchmark is usually 6/7 of total assets.
Only excess debt provided directly or indirectly by a shareholder or related person is hidden equity; unsupported independent third-party debt is not caught merely because leverage is high.
Interest attributable to hidden equity is added back for profit tax and treated as a benefit for Swiss withholding-tax purposes.
Repayment of the principal reclassified as hidden equity is not itself treated by the circular as a taxable benefit.
01
Calculating permitted debt
A debt-capacity percentage is applied to each asset class, ranging from 100% for cash to lower ratios for shares, movable assets and certain real estate. The ratios apply to end-of-period market values and material intra-year changes may be considered. Where the company proves that its actual financing is arm's length, the result may differ from the standard table.
03
Tax consequences
Interest attributable to hidden equity is non-deductible and added to profit under Article 65 DFTA. It is also treated as a benefit for withholding-tax purposes. Where a related loan bears a below-market rate, the circular permits expense recognition up to the officially accepted arm's-length rate for recognised debt and adds back only the remainder. Repayment of the reclassified principal is not equated with a distribution.
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Official source
This material explains the official publication without reproducing it and is not an official translation or individual advice. Current legislation, cantonal practice and the facts must be checked before application.
ESTV Kreisschreiben Nr. 6a
www.estv.admin.ch · 2024-10-10 · PDF · 3
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