The too-big-to-fail (TBTF) regime forces systemically important banks to have sufficient capital so that taxpayers do not have to bail them out in the event of a crisis. This obligation can result in them issuing TBTF instruments such as bail-in bonds, write-off bonds and contingent convertible bonds (CoCos).

In the case of systemically important banks, the issuance of TBTF instruments must be carried out by the group parent company from 1 January 2020 at the latest in accordance with the requirements of the Swiss Financial Market Supervisory Authority (FINMA). The group parent company transfers the funds from TBTF instruments internally to those group companies that require capital.

This increases the profit tax burden on financial interest revenue for the group parent company, as the so-called participation deduction is lower. More taxes lead to lower capital and are thus inconsistent with the TBTF legislation's aims. In the absence of legislative amendments, this would result in an increased profit tax burden, which in the long term could lead to additional receipts of up to several hundred million Swiss francs a year in the case of direct federal tax and cantonal tax.

In order to support the TBTF legislation's aims, the calculation of the participation deduction for the group parent company of systemically important banks will be adjusted on a selective basis.

TBTF instruments' interest expense should no longer be part of financing expenses, which reduce the participation deduction.
The funds from TBTF instruments transferred to group companies are to be excluded from the group parent company's consolidated statement of financial position.

During the consultation, business circles criticised the fact that the bill focuses solely on the tax framework of banks. In view of the varying supervisory situation, the Federal Council continues to consider the thrust of the bill to be appropriate. Therefore, Parliament had also decided to exempt TBTF instruments from withholding tax in order to leverage the TBTF legislation's aims. In response to the criticisms voiced, however, the change will be limited to systemically relevant banks in order to keep the exemption as narrow as possible.

Easier accumulation of capital for systemically important banks