SWITZERLAND: An Introduction

Switzerland Country Overview 2022 

Despite its relatively small size, Switzerland is home to several large and well-established international companies, spanning a diverse range of industries. These include major banks such as Credit Suisse and UBS, large insurance and reinsurance corporations such as Zurich Insurance and Swiss Re, and food and beverage, healthcare and biotech companies such as Nestlé, Novartis and Roche. Switzerland is also home to mechanical and electrical engineering companies specialising in high-technology, knowledge-based production such as the Swatch Group, Oerlikon and ABB. Tourism also plays an important role for Switzerland’s economy. While Switzerland has large global companies, most businesses are small or medium-sized, and many of them specialise in niche machinery and high technology. Switzerland is one of the world’s most competitive economies, thanks to its large and well-established corporate base, modern infrastructure and highly skilled workforce. Its political stability, comparatively flexible labour market regulations, transparent legal system, efficient capital markets and low corporate tax rates also play a part.

Market developments 

Impact of the COVID-19 Pandemic in Switzerland 

Switzerland's economy has weathered the COVID-19 pandemic relatively well so far, despite also having been hit heavily by the several infection waves over the past two years. In view of the ongoing "fifth" wave, economic forecasts have, however, been revised downwards in December 2021: KOF Swiss Economic Institute expects GDP to grow by 3.4 per cent in 2021 and 2.9 per cent in 2022. In contrast to other countries, Swiss inflation has so far remained within a range that the Swiss National Bank defines as price stability. Also, the unemployment rate (as defined by ILO) in Switzerland has remained stable at approx. 5.1 per cent in 2021.

In two national votes in 2021 the Swiss population backed the COVID legislation that generally tends to be less restrictive compared to Switzerland's neighbouring countries. The vaccination rate in Switzerland remains comparably low at less than 70 per cent, as a significant share of the population remains sceptic to vaccination, and no vaccination obligation has been introduced.

Mergers & acquisitions 

Following a slowdown in the M&A activity in the first half-year of 2020 due to the COVID-19 pandemic, Swiss M&A activity has rapidly picked up speed and has reached near record levels in 2021. In the first half of 2021, M&A activity rose by 70 per cent compared to the same period 2020, pursuant to a KPMG study. This sharp rise can be explained by companies resuming transactions they put on ice due to the pandemic, general confidence that is also reflected in the rising stock exchange prices and the continuing favourable financing environment. We expect continuing strong M&A activity throughout 2022.

Key noteworthy Swiss M&A transactions in 2021 involving Swiss targets include the CHF 4.7bn sale of Lonza Group's special ingredients unit to Cinven Partners LLP, the USD 4.6bn combination of Roivant Science with Montes Archimedes Acquisition Corp, the USD 2.3bn sale of Garret Motion to Oaktree Capital Management LP and Centerbridge Partners, L.P., as well as the USD 2.1bn sale of an 80 per cent stake in Crown Holdings' European Tinplate business to KPS Capital Partners LP. (source: KPMG: top 10 M&A transactions 2021)

Capital markets 

In April 2021, PolyPeptide Group successfully opened the Swiss IPO season 2021 with an CHF 848m offering and an implied market cap of around CHF 2.5 billion. This rep-resented the first traditional IPO in Switzerland since late 2019. While PolyPeptide remained the largest Swiss IPO of the year 2021, several additional successful Swiss IPOs followed in 2021, including by Montana Aerospace, Skan Group and Medmix. In December 2021, VT5 Acquisition Company became the first Swiss SPAC to successfully complete an IPO in Switzerland. In addition, to IPOs in Switzerland, several Swiss companies completed successful IPOs abroad, including Sportsradar and VectivBio on Nasdaq in New York. With numerous IPO projects in the pipeline, 2022 is expected to become a busy Swiss IPO year again.

In 2021, several Swiss listed companies completed public rights offerings, including Swiss Steel which successfully completed a CHF 247m capital raise in March 2021 after its second largest shareholder had sought to block the transaction by court order.

Debt capital markets were also very busy in 2021, covering the full spectrum from straight to hybrid debt, including the multi-billion covered bond program by Credit Suisse, the CHF 600m convertible bond placement by Idorsia, as well as a number of innovative green bond transactions, such as the in aggregate CHF 450 million offerings by Russian Railways of SIX listed green perpetual Loan Participation Notes.

Preeminent key political and legal topics discussed in 2020/2021

New financial market legal architecture 

The Swiss financial markets' legal architecture has been overhauled over the past years. A key objective of this significant transformation is the regulatory harmonisation of Swiss law with the relevant EU rules (in particular MiFID II, MiFIR, the Prospectus Regulation, the PRIIPs Regulation) to attain third-country equivalency thereunder, with adjustments made to reflect the specific circumstances of the Swiss financial markets.

Swiss Financial Market Infrastructure Act 

As a first cornerstone, the Financial Market Infrastructure Act (FMIA) came into force on 1 January 2016. Following the end of the last transitional periods, all obligations and provisions of FMIA are now in full force and effect since 1 January 2019. The FMIA established a regulatory framework for financial market infrastructure and trading venues, disclosure of significant shareholdings in listed companies in Switzerland, insider trading and market manipulation, and public takeovers, each modelled after the relevant EU rules. The FMIA also introduced regulations applicable to the over-the-counter (OTC) derivatives market.

Swiss Federal Financial Services Act 

The new Federal Financial Services Act (FinSA) and its implementing ordinance, the Federal Financial Services Ordinance (FinSO) entered into force on 1 January 2020, subject to phase-in with respect to certain obligations thereunder.

The FinSA sets out cross-sector rules (except for insurance and insurance products, which are excluded) for the provision of financial services. It introduced a comprehensive and harmonised prospectus regime that aims to achieve harmonisation with relevant EU rules while reflecting specific Swiss circumstances.

In connection with the offering and listing securities in the Swiss market, the FinSA brought the following novelties:

• The requirement to approve all offering and listing prospectuses by a new regulatory body (the 'review body') that is licensed and supervised by the Swiss Financial Market Supervisory Authority (FINMA), subject to certain exemptions.

• A new obligation to publish a prospectus not only for primary but also for secondary public offerings of securities in Switzerland.

• The codification of the private placement exemption and other exemptions from the requirement to publish a prospectus based on accepted Swiss standards and the EU Prospectus Directive.

• The requirement to prepare and make available a basis information document when offering financial instruments other than shares (or comparable equity securities) or certain debt instruments without derivative character to retail investors containing all necessary information to make an investment decision, presented in an easily comprehensible way and designed to make financial instruments easier to compare.

According to the new regime, the review body must approve a prospectus prior to a public offering or an admission of securities to trading on a Swiss trading platform. However, for certain debt securities (e.g. bonds) a prospectus can be approved after its publication provided certain requirements are met, reflecting longstanding Swiss market practice. By preserving the advantage of the current approval process for listing prospectuses in the Swiss debt capital markets, Switzerland continues to ensure attractive time-to-market conditions for issuers of debt instruments.

The new prospectus rules entered into force on 1 December 2020. The requirement to prepare and make available a basis information document pursuant to the FinSA entered into force on 1 January 2022.

Swiss Federal Financial Institutions Act 

On 1 January 2020, the Federal Financial Institutions Act (FinIA) and its implementing ordinances, the Federal Financial Institutions Ordinance (FinIO) and the Supervisory Organisation Ordinance (SOO) entered into force.

• The Federal Financial Institutions Act (FinIA) essentially harmonised the authorisation rules for financial service providers and, for the first time in Switzerland, subjects independent portfolio managers and trustees to licensing requirements and continuous prudential supervision.

• The Financial Institutions Ordinance (FinIO) details the conditions for authorisation and duties of financial institutions and their supervision.

• The Supervisory Organisation Ordinance (SOO) governs the authorisation conditions and activities of the newly introduced supervisory organisations (SO) that will be responsible for the ongoing supervision of portfolio managers, trustees and trade assayers in accordance with the Precious Metals Control Act.

Foreign Investment Control Regime 

On 26 February 2018, a motion was submitted in the Counsel of States (one of the two chambers of the Swiss Parliament), requesting the introduction of specific legislation and establishment of a specific authority to control foreign investments. The Swiss Federal Council (Swiss executive body) on 13 February 2019 published a report on cross-border investments and investment controls and decided against the introduction of general investment controls for the time being, and instead decided to conduct a monitoring procedure and to review the report within the next four years. Despite the Swiss Federal Counsel’s negative view on introducing foreign investment controls, both chambers of the Swiss Parliament have voted in favour of the motion, mandating the Federal Council to prepare a draft legislation for foreign investment control. Details and timing of the future investment control law (if ultimately passed at all) are currently not known, but in any event no such new law is likely to enter into force before the second half of 2022 at the earliest.

Revision of Swiss Stock Corporation Law 

On 19 June 2020, the Swiss Parliament adopted a comprehensive reform of the stock corporation law, a commonly used legal form for Swiss entities, marking an end to a legislative project that began more than a decade ago. The revised law will in particular introduce much-welcomed flexibility and administrative simplification in various areas e.g. relating to changes in capital, including the introduction of a capital band that enables the shareholders meeting to grant the board of directors the flexibility to repeatedly increase and decrease the capital within a range of up to +/- 50 per cent within a period of up to five years, without requiring a further decision by the general meeting. The new law is expected to come into force on 1 January 2023.

Corporate tax reform 

Switzerland has been undergoing major corporate tax reforms. Following approval in a popular vote on 19 May 2019, the tax reform package came into force on 1 January 2020. The aim of the reform package was to create an internationally compliant, competitive tax system for companies by abolishing existing tax privileges for companies that operate predominantly internationally (subject to phase-in) and introducing replacement measures including a general reduction of corporate income tax rates, a patent box, a special deduction for R&D costs, a step-up upon migration of companies or activities to Switzerland for tax purposes and the option for cantons to introduce a deduction for equity financing. The implementation of the voluntary measures of the TRAF at cantonal levels may vary from canton to canton.

On 1 July 2021, the OECD Inclusive Framework published key parameters for the future taxation of large companies that operate internationally. The key parameters provide for a moderate shift of taxing rights to market jurisdictions and a global minimum tax rate of at least 15 per cent. Switzerland supports these initiatives in the sense of continuing the work, while maintaining its reservations and conditions. No specific changes to Swiss tax law has been proposed at this stage.

Withholding tax reform 

Another Swiss tax reform project relates to withholding tax. Currently, a Swiss issuer of bonds must deduct a withholding tax of 35 per cent from interest (and certain other) payments made to investors inside and outside of Switzerland (debtor-based regime).

Because it may be difficult for investors outside Switzerland to reclaim Swiss withholding tax, the current system makes it impracticable for Swiss issuers to directly access investors outside Switzerland. This had a material adverse effect on Swiss capital markets for decades. To address this issue, the Swiss Federal Council published in December 2014 draft legislation to, among other things, replace the current debtor-based regime with a paying agent-based regime for Swiss withholding tax, where a withholding would be required only for Swiss individual investors. The Federal Council withdrew the draft legislation in June 2015 and mandated the Swiss Federal Finance Department to appoint a group of experts to prepare a proposal for reform of the Swiss withholding tax system. In 2018, the Swiss Federal Council decided to resume the suspended reform of the Swiss federal withholding tax. The proposal intended to replace the current debtor-based regime applicable to interest payments with a paying agent-based regime for Swiss federal withholding tax. On 11 September 2020 the Swiss Federal Council decided to submit to the parliamentary consultation a legislation project abolishing the Swiss federal withholding tax on interest payments made under bonds and notes. On 18 June 2021, the new law was approved by the Swiss parliament. As the referendum against this approval was raised, the revised law will be put to a popular vote on 13 February 2022.