Current questions on withholding tax and stamp duties, including international issues (2018)

Peter Mäusli-Allenspach

Markus Küpfer

Subject 1: Withholding tax: refund of unpaid tax

Basic facts

According to the entry in the Commercial Register, the main purpose of Wandervogel AG (hereinafter also referred to as the company) is to provide services in connection with long-distance travel. The company has its registered office in Canton A and its share capital amounts to CHF 100,000, divided into 100 fully paid-up registered shares with a nominal value of CHF 1,000. All shares in the company are held by Mr. X.

In mid-August 2015, representatives of the External Audit Department of the Federal Tax Administration (FTA) conducted an audit of Wandervogel AG's accounts for withholding tax for the financial years 2010 to 2014. The FTA held that certain transactions in the company's accounts constituted pecuniary benefits in favour of the sole shareholder, who also acts as managing director, for the purposes of withholding tax. It informed Wandervogel AG of this in a letter dated 10 October 2015 and at the same time gave it the opportunity to comment on the transactions complained of and to submit appropriate supporting documents. Wandervogel AG subsequently submitted certain documents and evidence. In the FTA's view, however, these were not sufficient to refute the accusation of benefits in kind. For this reason, the FTA charged to the company in the accounts as of February 1, 2016 the expenses for representation expenses of the sole shareholder and managing director X for the financial years 2010 to 2014 in the total amount of CHF 50,000, which were not justified by business considerations. Based on this, the FTA demanded that Waldvogel AG pay the withholding tax of CHF 17,500 (35% to CHF 50,000). This tax amount is to be transferred to the FTA by 1 March 2016; any justified objections can also be submitted by that date. Finally, the FTA stated in this letter that it could not rule out the possibility that the above-mentioned facts might lead to criminal prosecution. In this case, the FTA would inform the company accordingly at the appropriate time. In a letter dated 20 February 2016, Wandervogel AG once again asserted to the FTA that the representation expenses charged by the FTA constituted expenditure justified by business and could therefore not be subject to withholding tax.

Since the FTA and Wandervogel AG could not reach an amicable agreement, the FTA issued a contestable order on 10 August 2016. The possibility of filing an objection within 30 days of the opening of this order was pointed out. Wandervogel AG settled the tax claim of CHF 17,500 with the corresponding transfer of the tax amount with a value date of 1 September 2016, whereby, in the absence of an objection, the corresponding order of the FTA came into force unchallenged. Wandervogel AG also paid the default interest subsequently invoiced by the FTA without reservation.

As part of a relocation of the registered office of Wandervogel AG on 1 February 2017, employees of the company came across documents from the years 2010 to 2014, which in their view show that the disputed entertainment expenses do not represent payments in kind, but rather business expenses. Once the transfer of the registered office has been completed, Wandervogel AG will submit the relevant documents to the FTA with an entry dated 1 June 2017 and at the same time request it to return to its decision of 10 August 2016.

Question:

Can Wandervogel AG successfully claim that it should be reimbursed the withholding tax by the FTA?

Variant 1

Contrary to the basic facts, Wandervogel AG is already paying withholding tax to the FTA without reservation based on the invoice of 1 February 2016 by means of a corresponding bank transfer with a value date of 28 February 2016. Wandervogel AG also paid the default interest subsequently invoiced by the FTA without reservation.

In October 2016, the Criminal Matters and Investigations Department (ASU) of the FTA opened criminal proceedings against the sole organ of Wandervogel AG, Mr X, for evasion of withholding tax. As part of these proceedings, Wandervogel AG requested by letter dated 1 February 2017 a contestable decision from the FTA regarding the levying of withholding tax. The FTA stated in writing to Wandervogel AG that the proceedings concerning the levying of withholding tax had been concluded with the unconditional settlement of the invoice by Waldvogel AG with a value date of 28 February 2016 and that the FTA would not return to this matter. Wandervogel AG, for its part, insists on its position that it should be given a challengeable order by the FTA to levy withholding tax.

Question:

Does Wandervogel AG have a claim against the ESTV for the issue of a contestable ruling regarding the levying of withholding tax?

variant 2

Following the letter from the FTA to Wandervogel AG dated 1 February 2016, discussions will take place between representatives of the FTA and Wandervogel AG. Based on this, Wandervogel AG recognises the withholding tax claim. Due to a lack of liquidity, the FTA granted Wandervogel AG the option of settling the withholding tax liability of CHF 17,500 in monthly instalments of CHF 3,500 under a written instalment plan, together with statutory default interest to be invoiced separately at the end. All this was recorded in writing in the instalment agreement.

Wandervogel AG paid the first two instalments, but subsequently took the view that the disputed representation expenses at Wandervogel AG constituted expenditure justified by business considerations and that there could therefore be no payment in money's worth and that the withholding tax liability was therefore unjustified. The company therefore requested the FTA to issue a corresponding countervailable injunction. For its part, the FTA points out that the company, by agreeing to the installment plan - although the corresponding written agreement did not take the form of a contestable ruling - recognized the withholding tax claim and the corresponding tax claim therefore became legally enforceable. Therefore, the FTA could not come back to this.

Question:

Does Wandervogel AG have a claim against the ESTV for the issuance of a contestable order for the levying of withholding tax?

Subject 2: Stamp duties and withholding tax in the event of the merger of a reorganised sister company

The shareholders of Alpha AG and Beta AG are natural persons resident in Switzerland. Both companies are operationally active.

Beta AG had incurred large losses in the years 2014 to 2017 when it set up a new business unit. As of the balance sheet date, the shareholders have each made contributions in the necessary amount to maintain equity at least at the level of the share capital. These grants were each recorded as capital contribution reserves. There was never an offsetting against the loss carried forward. The emissions levy was settled and paid. Form 170 was submitted in due time in each case and the Income Tax Treaty confirmed the reported CER as of 31 December 2016; it can be assumed that the reported CER as of 31 December 2017 can also be confirmed.

In the first quarter of 2018, the shareholders decide to merge the two companies as of 1 January 2018, with Alpha AG taking over Beta AG. The balance sheets as of 31.12.2017 and the merger balance sheet as of 1.1.2018 are as follows:

Question:

How do you assess the merger in terms of withholding tax and stamp duties?

Subject 3: Stamp duties; turnover tax liability of a collective investment scheme

Basic facts

Bank A has its registered office in Canton B and is subject to supervision by the Swiss Financial Market Supervisory Authority (FINMA). As part of its business activities, Bank A offers its clients tailor-made and individual asset management solutions.

For its clients B AG and C AG (both industrial companies and no qualified investors), who have similar investment needs, Bank A sets up a collective investment scheme in the form of a contractual investment fund approved by FINMA (hereinafter A investment fund). All share certificates of the A investment fund are held by B AG and C AG, there are no other investors. The fund management of the A-investment fund acquires participation rights in the Swiss D AG and the Austrian E AG via the stock exchange as part of its business activities for this fund.

Question:

Will the acquisition of the participation rights in D AG and E AG result in consequences under stamp duty law for the fund management of the A-investment fund?

Variant 1

Bank A sets up the A investment fund exclusively for F AG. F AG is a domestic life insurance company.

Question:

Will the acquisition of the participation rights in D AG and E AG result in consequences under stamp duty law for the fund management of the A-investment fund?

variant 2

Bank A sets up the A investment fund exclusively for G AG. G AG is a domestic property insurance company.

Question:

Will the acquisition of the participation rights in D AG and E AG result in consequences under stamp duty law for the fund management of the A-investment fund?

Variant 3

Contrary to the facts of the case, Bank A has its registered office in Germany. Bank A sets up the D investment fund approved by the German supervisory authority exclusively for H AG. H AG is a German life insurance company. Subsequently, the fund management of the D-investment fund acquires participation rights in the Swiss D AG and the Austrian E GmbH via the Swiss intermediary Vorteil Finanz AG on the Zurich stock exchange.

Question:

Does the mediation of the participation rights in D-AG and E-AG to the fund management of the D-investment fund result in consequences under stamp duty law for Vorteil Finanz AG?

Topic 4: Withholding tax; reporting procedures in the group relationship

Facts

In the case of X-Trading AG, which is domiciled in Switzerland, a tax audit for the years 2015 and 2016 will determine on September 30, 2017, monetary benefits that relate to the parent company Y-Holding AG domiciled in Germany on the one hand and various group companies in Switzerland and other countries on the other.

The company's CFO is of the opinion to the EStV that, based on Art. 20 (2) VStG, the withholding tax liability for all pecuniary benefits can be fulfilled in the notification procedure.