Transfer stamp tax: new developments

The securities dealer under the Stamp Duty Act

The Swiss Federal Tax Administration (SFTA) levies a transfer stamp tax on the turnover of certain domestic and foreign certificates. The subject of this stamp tax is the purchase and sale of taxable securities, provided a securities dealer is a contracting party or intermediary.

The term “securities dealer” is to be interpreted in accordance with the StG and is not congruent with the equivalent term under regulatory law.

Securities dealers within the meaning of the StG include domestic banks within the meaning of banking legislation as well as domestic natural persons and legal entities and partnerships, domestic institutions and branches of foreign companies whose activities consist exclusively or to a significant extent of trading in taxable securities for third parties (dealers) or who act as investment advisors or asset managers to arrange the purchase and sale of taxable securities (intermediaries).

The securities dealer is liable for half of the tax;

• if he acts as an intermediary: for each contracting party that neither identifies itself as a registered securities dealer nor as an investor exempt from the tax.
• if he is a contracting party: for himself and the counterparty that identifies itself neither as a registered securities dealer nor as an investor exempt from the tax. 

The question of whether a domestic person’s activity as a securities dealer falls within the scope of the term “dealer” or “intermediary” is therefore relevant for determining the duty to pay the tax.

Recent decision of the Swiss Federal Administrative Court

The decision of the Swiss Federal Administrative Court mentioned at the beginning is based on the following facts – it was disputed whether two foundations (Foundation-X and Foundation-Y), both belonging to the same group of companies, fulfilled the qualification of securities dealers: 

• The purpose of Foundation-X is to facilitate the acquisition of shares in a group company by employees of the group and to make contributions to the group's pension funds. The required shares are purchased by Foundation-X on the stock exchange and then sold to the beneficiaries. 

• The purpose of Foundation-Y is to enable or facilitate the acquisition of shares in a group company by employees of the group and to make contributions to the group's pension funds. The Foundation-Y enters into option transactions with employees for shares in the group company and, when the options are exercised, acquires shares from the employees and then sells them on the market or to other group companies. 

The Swiss Federal Administrative Court states that the form of the transaction and not the economic purpose behind it is decisive for assessing the qualification of the securities dealer. Furthermore, the Court states that the SFTA cannot rely on the mere economic reality in order to subject a situation to the transfer stamp tax. Conversely, the taxpayer cannot regularly avoid the transfer stamp tax simply because the economically identical result could have been achieved in another way.

The qualification of the two foundations (Foundation-X and Foundation-Y) as “intermediaries” was denied, because they neither provide investment advice nor manage assets for third parties. The Swiss Federal Administrative Court stated that in order to qualify as an “intermediary”, the person performing the intermediary activity must also be an investment advisor or asset manager. It rejected the SFTA's argument that the scope of activities of a professional intermediary as such includes the activities of an investment advisor and/or asset manager.

However, the Swiss Federal Administrative Court came to the conclusion that both foundations fulfil the qualification as “dealers”. The court stated that anyone who buys taxable securities from third parties in order to resell them to third parties is considered a “dealer”. This must be done with a certain regularity and on a commercial basis. However, the view expressed in the literature that the commercial activity must also be carried out with a larger group of persons was rejected by the Swiss Federal Administrative Court with reference to the wording of the law. 

In the present case, it was sufficient to qualify as a securities dealer that both foundations regularly acquired shares in order to resell them, that they carried out this activity on a commercial basis and that this trading activity represented at least a significant part of the foundations' overall activities. The fact that the transactions of Foundation-Y are concluded with a limited circle of persons did not prevent it from qualifying as a dealer. 

How should this decision be interpreted in practice?

The definition of “dealer” applied by the Swiss Federal Administrative Court is not fundamentally new and is largely taken from the literature. Only the interpretation that securities transactions with a limited group of persons are sufficient to qualify as a trader deviates from the previous doctrine.

The clarification of the term “intermediary” to the effect that the intermediary must also be an investment advisor or asset manager in order to qualify as a securities dealer is welcome and provides clarity, particularly for “intermediating” persons who do not provide investment advice or asset management services.

Based on the recent court rulings on the definition of a securities dealer, we recommend that domestic legal entities that regularly deal with taxable securities transactions as part of their business activities analyze their activities in more detail from a transfer stamp tax perspective.

If the activities carried out by the legal entity qualify it as a securities dealer within the meaning of the StG, it must immediately register with the SFTA and comply with the related obligations such as the declaration and payment of the transfer stamp tax.

Article written by Dominique Roggo and André Kuhn