As of 1 January 2023, several changes regarding the withholding tax notification procedure for intra group dividends will come into force. This affects domestic and cross-border intra group dividend payments.
What is it about?
The Federal Council adopted the regulation on the withholding tax notification procedure for intra group dividends. The changes will come into effect on 1 January 2023.
With the notification procedure, intra group dividends can be notified to the Federal Tax Administration (FTA). The notification fully replaces the withholding tax deduction and the subsequent refund procedure in domestic group structures. The application of the notification procedure is currently possible for domestic intra group dividend payments from a participation quota of 20%. The domestic notification procedure for intra group dividends can currently only be claimed by corporations / cooperatives.
For cross-border intra group dividend payments, the declaration replaces the withholding tax deduction on the dividend to the extent of the relief provided for in the applicable double taxation agreement (DTA). The actual participation quota required (usually between 10% and 25%) and any minimum holding period for the application of the notification procedure are governed by the applicable DTA or international treaty.
The application of the notification procedure for intra group dividends in international structures requires an application and a valid permit (Form 823/823B/823C) from the FTA. The permit is granted for three years at a time, provided that the participation structure does not change significantly. The FTA must be notified immediately of any changes. The international notification procedure can only be applied if the foreign shareholder is a corporation.
It will be possible to apply the domestic notification procedure for intra group dividends from a participation quota of 10%. The required participation quota for the application of the international notification procedure for intra group dividends will not change; this is generally based on the regulation in the DTA/international treaty. In absence of such a provision in the DTA/international treaty, the reporting procedure will be also permissible from a participation quota of 10%.
Moreover, the scope of application of the notification procedure is extended as follows:
From 1 January 2023, the domestic notification procedure may be applied by any shareholder which is a Swiss legal entity. So far, this was limited to corporations/cooperatives. Thus, Swiss foundations and associations, for example, may now apply for the domestic notification procedure, provided that the other requirements are met. The international notification procedure will be applicable if the foreign shareholder is a company (as defined in the relevant DTA/state treaty); until now, the international notification procedure was limited to corporations.
The validity of the permit for the international notification procedure will be five years instead of three years. The extended authorisation period applies to all new permits granted or extended after 1 January 2023. However, there is still the obligation to notify the FTA immediately of any changes in the shareholder structure.
How are companies affected by the new regulation?
For domestic shareholders, the administrative effort in the group is reduced, as the payment and subsequent reclaim of withholding tax for participations between 10% and 20% no longer applies. Moreover, there is a benefit for liquidity planning, since no withholding tax has to be paid and subsequently reclaimed. The extension of the scope of application to legal entities and companies is appropriate.
The extension of the validity of the permit for the application of the international notification procedure helps to reduce the administrative burden in constant group structures, as the permit only has to be renewed every 5 years. However, the longer period of validity also means that changes in the participation structure under valid permits may occur more frequently, which must be reported to the FTA during the duration of the permit. The timely identification of changes in the participation structure will become more relevant.
We recommend that domestic and foreign shareholders of Swiss participations check whether they can benefit from the changes from 1 January 2023.