Switzerland levies federal withholding tax at the rate of 35% on certain capital income, including dividend distributions of Swiss corporations. The federal withholding tax is fully refundable for Swiss resident recipients, provided that they (i) are beneficially entitled to and (ii) correctly declare respectively account for the taxable income. In turn, a foreign resident recipient may only claim a (full or partial) refund of federal withholding tax if the provisions of a double tax treaty concluded between Switzerland and the residence country of the shareholder provide so. Most Swiss double tax treaties provide for a full refund or at least for a significantly reduced residual base tax in a parent-subsidiary context, whereas the relief may be directly applied at source if certain conditions are met.
Pursuant to a decision of the Swiss Federal Court dated 19 January 2011, the failure to observe the 30-day deadline for settlement of federal withholding tax on dividends distributed to the parent company by way of the so-called notification procedure led to the consequence that the possibility for settling the withholding tax by way of notification was forfeited. As a result, the Swiss Federal Tax Administration insisted on the collection of the withholding tax, forcing the receiving parent company to submit a refund request even where the full withholding tax was refundable. In addition, the Swiss Federal Tax Administration levied 5% late interest from the due date of the withholding tax, reportedly collecting late interest in an amount of approx. CHF 600m this way.
These consequences were largely considered as excessive and a parliamentary initiative was launched in December 2013 in order to correct the situation. While the retroactive application of the changes to the notification procedure was highly controversial in parliament, the bill was finally passed on 30 September 2016.
Claims for Refund of Late Interest
As per 15 February 2017, the provisions of the Federal Act on Withholding Tax governing the notification procedure will be amended. According to the amended provisions, the notification procedure can still be applied successfully after expiration of the 30-day notification period and no late interest will be due where the recipient of the dividend was entitled to a full refund. In turn, the missing of the filing period may draw a fine of up to CHF 5’000.
For dividents which have not been reported so far, the new rules are applicable with retroactive effect from 1 January 2012. Companies which had to pay late interest in the past are entitled to file a refund claim within one year from the enactment of the new rules, provided that it would have been permitted to apply the notification procedure under the governance of the amended rules and that the assessment notice for late interest did not become final and binding before 1 January 2011.
The Swiss Federal Tax Administration will provide a specific form which must be used in order to claim the refund of late interest. It has further been announced that refund applications will be systematically reviewed with respect to verifying the underlying title to treaty benefits of the recipient of the dividend, and therefore it may be recommendable to file supplementary information in order not to delay the procedure.
For further information please contact Mark Cagienard and Dr. David Schuler.