The Swiss government said it will alleviate tax obligations on the country's systemically important banks related to too-big-to-fail instruments.
Systemically important banks will need to issue instruments such as bail-in bonds and contingent convertible bonds, or CoCos, at the group parent company level from Jan. 1, 2020. The parent then transfers the funds internally to those entities requiring capital.
This increases the profit tax burden for the parent entity as "participation deduction" is lower. As more taxes lead to lower capital, this is inconsistent with the aims of too-big-to-fail legislation, the government said.
Therefore, too-big-to-fail instruments' interest expense will be eliminated from financing expenses, reducing the participation deduction. Further, funds from these instruments transferred to group companies will be excluded from the group parent company's consolidated statement of financial position.