Swiss Annual General Meetings in the COVID-19 crisis: Q&A
Partner Olivier Cavadini and Tax Expert Laure Cordt-Møller consider key questions for companies on how to approach AGMs during the Covid crisis.
1. How to organise an Annual General Meeting in this period when gatherings of more than 5 people are not permitted?
Olivier Cavadini: The Federal Council has introduced into Ordinance 2 COVID-19 a new Article 6b relating to the organisation and holding of AGMs. The Council has taken into account that protective measures in light of the current health crisis may make it difficult, if not impossible, for Swiss companies to organise their Annual General Meetings (AGMs).
This new article allows AGM organisers to require shareholders to exercise their voting rights in writing, electronically or through a representative. This will significantly ease the organisation of AGMs in the current situation and in respect of shareholders' rights.
It should be noted that for small and medium-sized companies, where the number of shareholders is often less than five, holding an AGM in the standard way, i.e. in the presence of the shareholders, remains possible, provided that security measures are respected (i.e. maintaining social distance), but is not compulsory.
This measure is effective until 10 May 2020, with a further update expected on that date.
It is important to bear in mind here that the 6-month time limit from the closing of accounts to hold an AGM remains in force, but that more up-to-date methods are being implemented to facilitate the holding of an AGM, where it is not possible to convene all the shareholders.
2. What is the time limit for notifying the shareholders of the AGM date and procedure?
Olivier Cavadini: The organiser of the AGM must comply with the notice periods provided for in the Articles of Association of the said company, i.e. 20 days as a general rule, but must inform shareholders no later than four days before the meeting is to be held that they will need to exercise their rights electronically or in writing, or through an independent representative. The shareholders must therefore have time to read the agenda and ask any questions they may have, in the absence of their physical presence at the meeting.
3. Our recommendations
Olivier Cavadini: The organisation of an AGM depends primarily on the number of shareholders to be convened. We would therefore say that for small and medium-sized companies with no more than five shareholders, a face-to-face meeting is entirely feasible, provided that distance measures are respected. For larger companies, we would obviously recommend using the solutions outlined in Ordinance 2 COVID-19 by requesting shareholders to vote in writing or electronically. The appointment of an independent representative by the Board of Directors is a very interesting and certainly effective way of bringing shareholders' voices together.
Finally, and on a more strategic level, we would recommend (for companies whose AGMs have not yet been held) to apply the principle of prudence, particularly with regard to dividend distribution. In light of the current situation and the commercial uncertainties, it would indeed be more prudent to keep reserves rather than to distribute them.
4. In terms of taxation, what should not be overlooked in relation to AGMs ?
Laure Cordt-Møller : It is at Annual General Meetings that the distribution of dividends or reserves resulting from capital contributions are validated by the shareholders. These distributions require a declaration to the Federal Tax Administration, which is subject to a strict deadline, i.e. without the possibility of deferment.
For dividend distributions, a withholding tax declaration must be filled. Depending on the case, this dividend declaration does not generate a payment of tax (notably in the case of a payment to a company with a shareholding of more than 20%), but the declaration must be made within a strict time limit and using specific forms (F103/110/106/108). The deadline for filing the dividend declaration is 30 days following the dividend due date. If no due date is explicitly provided in the Minutes of the AGM, the date of the meeting itself is taken as the due date. We therefore recommend providing a due date that allows the company to meet its tax obligations without the risk of having to pay withholding tax, which can represent a significant financial burden.
For dividends paid to individual shareholders for example, the declaration of the dividend must also be filed within 30 days of the dividend due date and the payment of tax must also have been made. Any delay in payment will incur interest on arrears of 5%.
With regard to distributions from reserves resulting from capital contributions, it should be noted that they are not subject to withholding tax, but any change in this reserve (decrease or increase) must be announced to the Federal Administration (F170). In light of the current situation, the latter is relatively flexible with regard to the filing deadline, but it must nevertheless be respected as far as possible.
5. Our recommendations
The impact in terms of withholding tax can be very heavy for a company, particularly if the declaration procedure is refused or if the tax is paid late. We therefore recommend that the deadlines for filing the forms be respected and that the withholding tax paid on time. Unfortunately, we find that tax obligations are not always seen as a priority following the AGM. This should however become an automatic process.
In general, we also recommend great caution in distribution decisions. In these uncertain times, it is better to establish or maintain reserves than to spend them. Even if the forecast for the year 2020 cannot yet be precisely determined, a downward trend is more or less certain. It would therefore be wise to estimate results as best as possible and to request an adjustment of advance payments to avoid a large outgoing of cash when inflows of cash are more likely lower at present and in the weeks to come.
For any questions, please contact Olivier Cavadini (firstname.lastname@example.org or +41 (0)22 591 18 44) or Laure Cordt-Møller (email@example.com or +41 (0)22 591 18 90).