Bridging credit facilities: Tax considerations of the COVID-19 CREDIT

COVID-19 CREDIT for companies. Eight answers to tax questions.

During the coronavirus crisis, many companies are suffering from a decline in sales and are therefore facing liquidity problems. Consequently, many are falling back on the support measures enacted by the federal government. What you need to know – guidance on eight key questions.


Granting of bridging credit facilities

The Emergency ordinance on the granting of credits with joint and several guarantee (Notverordnung zur Gewährung von Krediten mit Solidarbürgschaften) adopted on March 25, 2020, by the Federal Council provides companies affected by the coronavirus with guaranteed bridging credit facilities of up to 10 percent of their turnover, or a maximum of 20 million Swiss francs. Credit Suisse has been actively involved in this federal ordinance and, as a result, has issued numerous loans to effectively support the Swiss economy.

In connection with these measures enacted by the federal government, there are some things that entrepreneurs should consider if they are applying for a COVID-19 CREDIT or have already accepted one. Tax considerations and foresight are essential. In the following article, we'll answer eight questions on tax and legal considerations that we've received repeatedly.

1) Are there measures to preserve liquidity with regard to tax claims?

Even in "normal" times, companies were able to apply for a deferral of payment or installment payments for tax claims in the event of payment difficulties. In connection with COVID-19, various cantonal tax offices and the Federal Tax Administration (FTA) have now announced that they will handle such requests "benevolently" and swiftly. We therefore advise companies to review this option in individual cases and, if necessary, to submit the appropriate applications. The hurdle for tax relief requests remains high.

2) What relief does social insurance offer?

As far as the BVG is concerned, the Federal Council declared that companies may, temporarily, make "employee" contributions from the employer contribution reserve. The company must first notify the pension fund in writing if it wishes to make use of this option.

Deferrals are being granted for social insurance contributions (AHV/IV/EO/ALV). Companies can also reduce their regular advance payments if the salaries in their company have fallen significantly. The governing bodies of a company (in particular, the board of directors and executive board) are personally liable in the second degree for social insurance contributions.

3) Can I have my company pay me a dividend or grant a loan?

No. As long as a COVID-19 CREDIT exists, neither distributions of dividends nor the granting of an additional shareholder loan is possible (for exceptions, see question 4). As a result of these restrictions and general challenges in the area of ​​liquidity, the previous strategies entrepreneurs have used to pay out profits – the interplay of salaries, dividends and pension provision – is frequently being questioned. Existing plans have to be reconsidered and, if necessary, adjusted under consideration of the current situation and the economic possibilities.

4) What does the ban on dividends mean for recent corporate succession?

Due to the restriction mentioned in question 3, distributions of dividends to an acquisition vehicle (parent company) as part of a succession solution are not permitted as long as the company has a COVID-19 CREDIT. As an exception, funds may still be allocated as "shareholder loan”. However, this only applies if the acquisition vehicle uses these funds exclusively for pre-existing interest payment obligations and (starting January 1, 2021) for pre-existing amortization obligations. Such a shareholder loan can, however, harbor various pitfalls under civil and tax law, which must be reviewed in advance (in particular the practice of simulated loans).

5) How will the ban on dividend distribution affect future succession solutions?

The aforementioned exception for shareholder loans relates to existing financing structures. For future tax-optimized succession solutions that are structured through an acquisition vehicle, a prior repayment or restructuring of the COVID-19 CREDIT must be discussed with the bank.

6) From a tax perspective, are provisions possible due to the consequences of COVID-19?

There is currently no standard, Swiss-wide solution in this regard. While EXPERTsuisse has qualified the COVID-19 pandemic as a non-accountable event for financial statements as of December 31, 2019, the individual cantonal tax administrations (currently Aargau, Thurgau, Valais, and Zug) have announced that companies affected by the consequences of the pandemic may show corresponding provisions in their annual financial statements or in the 2019 tax balance sheet. The structure of these profit-reducing "coronavirus provisions" is not uniform and must be reviewed in each individual case.

7) What are the tax implications of financial rehabilitation measures or possible future waivers of claims?

If the COVID-19 CREDIT cannot be fully repaid by the deadline, restructuring will be necessary. The individual restructuring instruments (such as a waiver of claims, capital reduction) must be properly qualified for profit tax purposes. A distinction must be made between tax-effective and tax-neutral income from contributions to restructuring measures. In addition, tax law provides that real restructuring income may be offset against losses from previous years for an unlimited period of time. A detailed review should be conducted promptly.

8) How else can Credit Suisse help me?

Your client advisor can assist you with the aforementioned issues and, if necessary, request the assistance of our experienced tax experts in the field of corporate tax law.

Do you have questions about the COVID-19 CREDIT?


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