The National Council and the Council of States approved in September 2016 a retroactive correction of the notification procedure practice for withholding taxes and a reimbursement of late payment interest in the amount of CHF 600m which were levied unlawfully.
Notification procedure for withholding taxes
The Swiss Withholding Tax Act allows for a notification procedure for national and international distributions of dividends to affiliated companies instead of a cash tax payment with subsequent request for refund of the withholding tax. The ordinance to the Withholding Tax Act provides for a notification procedure of group internal dividends within 30 days after due date of the dividend. No consequences are mentioned in case the notification is submitted after the 30-day deadline. According to a long-standing practice, the deadlines were considered administrative deadlines and a breach as such was penalized with an administrative fine (if at all).
Change in practice of the SFTA in 2011
The Federal Supreme Court decided in January 2011 that the deadline for the notification procedure shall be considered forfeiture and that the notification procedure would not be applicable in cases where the form is not submitted within 30 days.
With reference to this Supreme Court decision, the Swiss Federal Tax Administration (SFTA) started in 2011 to refuse late submissions even though the preconditions for the notification may have been accomplished materially. The SFTA requested taxpayers to pay the withholding tax in cash and to subsequently reclaim the amount. Thereafter, the SFTA issued invoices including alleged interests of 5% on late payments for the period between expiry of the deadline and the actual withholding tax payment, despite the fact that the withholding tax was actually not due.
Debate in the Chambers of the Swiss Parliament
In 2013, an initiative was submitted to the parliament with the request for a limitation of such practice. The discussion about a correction of such deficiency was going back and forth between the Council of States and the National Council in the last three years, in particular regarding the retroactive application of the amendments to the law. The Council of States agreed with decision on 20 September 2016 that the notification procedure can also be applied after the 30-day submission deadline and that no interest on late payments is due.
With the vote of the National Council on 22 September 2016 the final differences of the Chambers regarding sanctions have been settled: The National Council followed the position of the Council of States and agreed with an administrative fine (up to CHF 5’000).
Reimbursement of CHF 600m
Part of the long debates was about late payment interest levied since 2011 in the amount of CHF 600m. The National Council and the Council of States expect the Swiss Federation to reimburse this amount to the corporations affected. The final vote in the parliament is outstanding and a referendum still possible, although rather unlikely.
* Quote Erich Ettlin (CVP/OW) in the debate of the State Council on 20 September 2016: „Dem sage ich Wegelagerei: Da hat man den Leuten Geld aus dem Sack gezogen, das man nie hätte einnehmen dürfen.“
** Alexandra Wintsch