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Switzerland: Withholding tax refund on dividend transactions denied

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Ferdinando Mercuri and Céline Dupasquier, Deloitte

After two decisions in favour of tax payers with regards to withholding tax (WHT) refund in cases close to "dividend stripping scheme", the Federal Administrative Court (FAC) took an opposite decision on March 13 2013 and refused the refund of the WHT levied on dividends distributed by a Swiss company to a Swiss bank.

This decision was taken based on domestic law whereas the two previous decisions were taken in application of the double tax treaty (DTT) between Switzerland and Denmark. In this very last decision, the transaction ruled upon consisted in the acquisition of shares by a Swiss bank from UK counterparties before the dividend due date and simultaneously in the sale at a lower price of futures on similar stocks to the same counterparties. The FAC argued that the dividends paid were actually distributed to the foreign counterparties by the Swiss bank before the distribution. Consequently, the FAC came to the conclusion that based on Swiss law, the conditions to benefit from the reimbursement were not fulfilled as the Swiss bank had no right of use on these dividends. It also concluded that the only purpose of the transaction from the counterparties' standpoint was to save tax and consequently that the conditions of tax avoidance were fulfilled.

The FAC also rejected the partial refund to UK counterparties based on the DTT because there is no evidence that the counterparties would have been entitled to benefit from this refund and that in any case the refund was not requested in due time. With this latter argument, the FAC emphasises the importance to strictly comply with the legal procedure and deadline to obtain a refund.

This decision, as well as the previous ones, will most probably finally be judged by the Supreme Court which, hopefully, should come to a similar conclusion for all cases. This is desirable to remove the legal uncertainty with regards to the WHT impact in such operations.

Ferdinando Mercuri (fmercuri@deloitte.ch)

Tel: +41 58 279 9242

Céline Dupasquier (cdupasquier@deloitte.ch)

Tel: +41 58 279 9226

Deloitte

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