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Switzerland: Supreme Court restricts the application of the Swiss Old Reserves practice

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Swiss Old Reserves practice restricted to cases of tax avoidance

René Zulauf and Manuel Angehrn of Deloitte Switzerland explain why the restriction of the Swiss Old Reserves practice to cases of tax avoidance is a welcome move.

To prevent treaty shopping, the Swiss Federal Tax Administration (SFTA) universally applies the so-called Swiss Old Reserve practice based on a schematic asset/liability test: if there are distributable reserves/retained earnings prior to the transfer of shares from a jurisdiction with a higher residual withholding tax to a jurisdiction with a lower one, the previous higher rate still applies on these reserves/retained earnings. 

The Swiss Supreme Court had to review the application of the Swiss Old Reserves practice in a recent case. While the court upheld the application of the practice in principle, it ruled that it should be restricted to cases of actual tax avoidance. For tax avoidance, three conditions need to be fulfilled cumulatively.

  • Objective requirement: The taxpayer used structuring that is unusual, unnecessarily onerous and complex.

  • Subjective requirement: The taxpayer chose this structuring with the sole intent of achieving a (Swiss) tax benefit (and it provides no other meaningful economic benefit or purpose).

  • Actual tax saving:  An actual tax benefit could have been achieved through the structuring. 

It is therefore up to the tax authorities to prove tax avoidance based on the three points above. 

The Supreme Court decision is far-reaching in that it should significantly restrict the present universal application of the Old Reserves practice. To be able to impose Old Reserves, the SFTA would have to prove tax avoidance in each individual case in future.

In particular, the SFTA would have to be able to sufficiently prove that the structuring was done with the sole intent of avoiding Swiss withholding tax and that it provides no other meaningful economic benefit or purpose. 

In cases of a global restructuring, where, for instance, a US group is putting all its European subsidiaries under a new European holding company, it should in principle no longer be possible to impose Old Reserves, as the sole purpose of such a restructuring is clearly not to avoid Swiss withholding tax but to obtain many other benefits.

We very much welcome the restriction of the Swiss Old Reserves practice to cases of tax avoidance. This is another step towards making Switzerland even more attractive as an international holding jurisdiction.


René Zulauf

Partner, Deloitte Switzerland



Manuel Angehrn

Senior manager, Deloitte Switzerland



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