What is it all about?
The Federal Council has prepared a proposal for a solution at ordinance level to adjust the withholding tax declaration of group dividends in connection with the notification procedure. The consultation period runs until 14 July 2021.
Regulation in force today
By means of the notification procedure, the taxable benefit (dividend/deemed dividend) is reported to the Swiss Federal Tax Administration (SFTA). For national purposes, the notification fully replaces the withholding tax deduction on a taxable benefit and the subsequent reclaim procedure. The application of the notification procedure on a national level is currently possible from a participation rate of 20%.
For international purposes, the notification procedure replaces the withholding tax deduction according to the relief stipulated in the applicable double taxation agreement (DTA). The specific participation level required (usually between 10% and 25%) and any minimum holding period for the application of the notification procedure are governed by the respective DTA.
An application and a valid authorization (Form 823/823B/823C) from the SFTA are required for the application of the notification procedure on an international level. The authorization is granted for three years at a time, provided that the participation structure does not change significantly.
Proposed new regulation
For national purposes, it would be possible to declare a taxable benefit from a participation rate of 10%. On an international level, the participation rate required for the application of the notification procedure does not change and will continue to be based on the regulation in the respective DTA. In the absence of such a regulation, the notification procedure should also be permissible from a participation rate of 10%.
In addition, the validity of the authorization for the international notification procedure should now be five years instead of three years. The extended authorization period applies to all new authorizations granted or extended after the entry into force. However, companies would still be obliged to notify the SFTA of any changes in the participation structure immediately.
How are companies affected by the possible new regulation?
On a national level, the group administrative burden will be reduced, because the payment and reclaiming of withholding tax on taxable benefits received from participations between 10% and 20% will no longer apply. Additionally, the elimination of the payment and subsequent (partial) reclaiming procedure has positive effects on liquidity planning.
The extension of the validity of the authorization for the application of the international notification procedure contributes to reducing the administrative burden in constant group structures, as the authorisation only has to be renewed every 5 years. However, the extended period also means that changes in the participation structure, which must be reported to the SFTA during the authorization period, may occur more frequently under a valid authorization. The timely identification of significant changes in the participation structure therefore becomes more relevant.
We recommend that companies which hold Swiss participations with a rate of between 10% and 20% or which have an SFTA authorization to apply the international notification procedure closely follow the developments in the area of the notification procedure.