The Swiss Federal Council on Sept.30 instructed the Federal Department of Finance to prepare a draft consultationpaper on amending legislation to reduce the tax burden from certain financialinstruments for systemically important banks in an aim to prevent adverseeffects on such banks' capital accumulation.
The proposed solution wouldprevent too-big-to-fail banks' tax burden from rising with the issuance ofcontingent convertible bonds, write-off bonds and bail-in bonds, which thegovernment noted, aim to reduce the banking sector's systemic risk. However,these instruments can lead to an additional system-related profit tax burden ofseveral hundred million Swiss francs per year.
The government is proposing theexemption of the three instrument types from the calculation of"participation deduction" or tax relief, meaning it would not bereduced. This would ensure that banks' capital accumulation progresses morequickly, in line with the aim of Switzerland's legislation on too-big-to-failbanks.