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Switzerland: Tightening of the Swiss withholding tax practice

As a result of the decision of the Federal Court of Switzerland (BGE 2C_756/2010) the Federal Tax Administration has recently tightened the practice as to the withholding tax notification procedure on Swiss dividends.

Generally, Switzerland levies a 35% withholding tax inter alia on dividends paid from a Swiss company to its shareholder. Provided the respective requirements are met, the shareholder can request a total or partial refund of the withholding tax due. For qualifying participations the payment and subsequent refund can be avoided using the so-called notification procedure.

For dividend payments from a Swiss company to a Swiss shareholder, the withholding tax obligation can be met by filing Form 106.

In an international relationship (dividend payment from a Swiss company to a foreign shareholder), the application of the notification procedure depends on the applicable double tax treaty or on the EU-Swiss Savings Tax Agreement. In any case it requires a prior approval from the Federal Tax Administration. Such permission can be requested by filing Form 823B (based on a double tax treaty) respectively Form 823 (based on the double tax treaty with the US) or with Form 823C (based on the EU-Swiss Savings Tax Agreement). Provided the approval is granted, the withholding tax obligation can be fulfilled filing Form 108 together with the ordinary withholding tax declaration (Forms 103, 110 or 102).

Both the notification procedure (Forms 106 or 108) as well as the ordinary withholding tax declaration (Forms 103, 110 or 102) must take place within 30 days after the due date of the Swiss dividend. Adherence to these deadlines was always crucial for dividend payments to foreign shareholders. However, for dividends within Switzerland, the compliance with this deadline was handled more pragmatically before the above mentioned decision of the Federal Court of Switzerland. Based on the recent court decision, the Federal Tax Administration qualifies the 30-day period as an absolute forfeiture period. This means that if the 30-days deadline is missed, the taxpayer forfeits the right to the notification procedure. In this situation the withholding tax must be paid and the shareholder has to request a refund. In addition, a late interest of 5% on the withholding tax amount is due for the period starting from the thirtieth day after the dividend due date until the payment of the withholding tax.

To avoid unnecessary cash drains, it is strongly recommended to pay attention to the formal criteria of the withholding tax notification and declaration procedure. In particular, the compliance with the 30-day deadline must be ensured.

Katya Federspiel (katya.federspiel@primetax.ch)

PrimeTax

Website: www.primetax.ch

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