DDM Holding: Swiss withholding tax applies to interest payments on SEK 300 million notes

By Susanna Moon

Chicago, Nov. 23 – DDM Holding AG said that interest payments under the DDM Treasury SEK 300 million senior secured notes are subject to Swiss withholding tax since the refinancing executed in June.

On June 23 the note amendments became effective following a written procedure, and the amendments included a pledge of the shares in DDM Treasury, added to strengthen the holders’ security package, according to a company announcement. DDM Group AG, a Swiss limited liability company, is the “pledgor” of the shares.

The ruling by the Swiss Federal Tax Administration is in contrast to the advice from Swiss legal counsel, which said that no Swiss withholding tax would apply despite the newly introduced share pledge.

However, the Swiss Federal Tax Administration has recently ruled contrary to the previous advice and concluded that DDM is liable to deduct Swiss withholding tax at a rate of 35% from interest payments on the notes. This is applicable as of June 23 and DDM Treasury will pay the withholding tax for the period up to and including July 5.

Holders who are residents or incorporated in most E.U. member states may receive a refund of all or most of the tax withheld.

The Swiss withholding tax is not applicable to interest payments under the fixed-rate subordinated notes due September 2016 (ISIN SE0005424272), issued by DDM Treasury in September 2013 and which do not benefit from any security.

Holders domiciled in Sweden or the United Kingdom may get a refund from the Swiss Federal Tax Administration of the full amount of tax withheld.

Holders domiciled in Luxemburg are entitled to a refund resulting in an effective Swiss tax rate of 10%, or a treaty reduction of 25%. Holders are expected to receive a corresponding tax credit in Luxembourg.

Holders resident or incorporated in other E.U. member states will be able to claim a refund of all or most of the tax withheld and should likely be entitled to tax credit in their home jurisdictions for any non-refundable Swiss withholding taxes, the release noted.

The coupon is 13% for the notes. The next interest payment date is Jan. 5, and the cash amount will be SEK 42,250 per SEK 1 million of notes, or an annual interest rate of 8.45%.

“DDM regrets the inconvenience this causes for the holders of the notes,” the release added.

DDM Holding is a multinational investor and manager of distressed assets. The company is based in Baar, Switzerland.

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