Reporting procedure in group relationships, reimbursement in national relationships - current practice and rulings

Case 1: Reporting procedure vs. payment of withholding tax

1. facts of the case

Produktions AG is a company with unlimited tax liability in Switzerland. Within the global Bitterballen Group, it is responsible for the production of foodstuffs with a high protein content. Produktions AG is wholly owned by Beteiligungen AG, which also has unlimited tax liability in Switzerland. Beteiligungen AG has the function of a country holding company. Beteiligungen AG is in turn held by the Dutch company Bitterballen B.V., which is the top holding company of the Bitterballen Group.

An audit by the Swiss Federal Tax Administration (FTA) for withholding tax and stamp duty purposes in 2021 revealed that Produktions AG reported salary expenses for one person (Ms. Global) in its books for the financial years 2016 to 2020, although she did not actually work for Produktions AG, but for numerous other group companies within the Bitterballen Group, all of which were based outside Switzerland. The FTA estimated (in the absence of precise information from Produktions AG) the corresponding salary expenses of Produktions AG for Ms. Global for the years 2016 to 2020 at a total of CHF 500,000. The FTA considered this to be non-cash benefits by Produktions AG for the benefit of the group companies for which Ms. Global worked. This pecuniary benefit led to a withholding tax claim of CHF 175,000 (35% of CHF 500,000).

As Produktions AG wanted to save itself the trouble of separating the individual tax claims for the various companies within the group that actually received the benefit in connection with this non-cash benefit, it added the withholding tax claimed by the FTA to one hundred and transferred the amount of CHF 269,231 to the FTA without reservation as at November 30, 2021. Production AG also paid the default interest subsequently charged by the FTA without reservation.

In 2023, Produktions AG came to the conclusion, based on a renewed review of the facts taken up by the FTA in 2021, that the withholding tax declared by it and subsequently paid as of November 30, 2021 could have been settled in the notification procedure. The ultimate beneficiary is the Dutch Bitterballen B.V. Due to this circumstance, the withholding tax paid in 2021 is no longer owed retroactively and the FTA must refund to Produktions AG the "erroneously" paid withholding tax in the amount of CHF 269,231, in addition to the interest on arrears paid and interest on remuneration from the transfer of the tax claim to the FTA. If, contrary to expectations, the FTA were to uphold its withholding tax claim, Produktions AG would also dispute the amount of the pecuniary benefit, which was in fact significantly lower than the CHF 500,000 invoiced by the FTA. However, Produktions AG did not submit any documents that could confirm this fact. Produktions AG thus submitted an application to carry out the notification procedure and requested the FTA to issue a contestable ruling in the event that its application was not granted. The FTA then issued a formal ruling in which it confirmed the pecuniary benefit of CHF 500,000 in full. Produktions AG lodged an objection against this.

Prior to issuing the objection decision, the FTA gave Produktions AG the opportunity to prove the amount of the monetary benefit. In response, Produktions AG submitted only incomplete records. For example, the FTA directly - i.e. without informing Produktions AG in advance - included statements that it received in 2022 as part of administrative criminal proceedings against Produktions AG in the context of an interrogation of an executive body of the company as a person providing information. These statements show that the expenses of Produktions AG for the salary payments in question for the years 2016 to 2020 actually amounted to CHF 510,000.

Questions

Is it lawful to refer to the files from the administrative criminal proceedings for the present substantive tax proceedings? Are there any other procedural aspects to consider?
Did the FTA correctly qualify the salary expenses of Produktions AG as benefits in kind in the present case? If so, is a reporting procedure permissible?

Case 2: Refund of withholding tax in inheritance matters

1. facts of the case

Ms. A is resident in Canton Z and has unlimited tax liability there. Ms. A is the daughter and sole heir of Ms. B (also resident in Canton Z), who died on October 2, 2021. After accepting her inheritance, Ms. A discovered that the deceased had not declared domestic SMI shares with a value of around CHF 3,000,000 and the resulting income, amounting to around CHF 70,000 to CHF 100,000 per year, in her corresponding tax returns.

In spring 2022, Ms. A's legal representative therefore filed a non-punishable voluntary disclosure in inheritance cases for the 2018, 2019 and 2020 tax periods, which is why the corresponding assets and income from them were taxed properly for income and wealth tax purposes for the 2018, 2019 and 2020 tax periods in a subsequent tax procedure.

As part of the voluntary disclosure, Ms. A's legal representative also applied for the refund of the withholding tax deducted on the post-declared investment income as follows:

2018: CHF 25'000
2019: CHF 30'000
2020: CHF 30'000

In a formal decision in autumn 2022, the cantonal tax administration Z rejected the requested refund because the testator (Mrs. B) had obviously failed to declare the post-declared assets and investment income, at least possibly with intent, and therefore there was no proper declaration within the meaning of Art. 23 VStG.

Question

Is Mrs. A entitled to a refund of the withholding tax on Mrs. B's post-declared investment income?

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Case 3: Current state of affairs regarding Art. 23 VStG (declaration clause)

1. facts of the case

Ms. Y is resident in Canton B and has unlimited tax liability there. She is the owner of all shares in X AG, which has its registered office and effective management in Canton A. The purpose of X AG is to provide financial services of all kinds and to hold investments. Ms. Y is also the owner of all ordinary shares in Y GmbH, which offers consulting services in the real estate sector. Y GmbH has its registered office and its actual management in Canton B. Like Ms. Y, it is therefore subject to unlimited tax liability in Canton B.

At the end of March 2020, Ms. Y sold all ordinary shares in Y GmbH to X AG at a price of CHF 150,000. In her 2018 and 2019 tax returns, Ms. Y declared her investment in Y GmbH at CHF 1 each in her securities register.

As part of the 2020 assessment of X AG by the tax office of Canton A, the tax office deemed the purchase price of the shares in Y GmbH by X AG of CHF 150,000 not to be in line with the arm's length principle. The tax-relevant value of this participation was set at CHF 1, which is why the contribution of the ordinary shares of Y GmbH at the level of X AG in the amount of CHF 149,999 was a contribution of a non-valeur. In the opinion of the tax office of the Canton of A, this non-valeur represents a pecuniary benefit from X AG to its shareholder Ms. Y.

Initially, X AG, or rather its sole shareholder Ms. Y, did not agree with this qualification of the tax office of Canton A and lodged an objection against the assessment (profit and capital taxes). However, the corresponding objection decision of the tax office of Canton A, which confirmed the existence of the pecuniary benefit of CHF 149,999 in full, became legally effective unchallenged on November 15, 2021. Ms. Y did not submit her personal tax return for the 2020 tax period until 30 November 2021, but without declaring the pecuniary benefit from X AG.

For its part, X AG declared the hidden profit distribution as a pecuniary benefit for withholding tax purposes on July 22, 2022 using form 102 and paid the tax owed on it in the amount of CHF 52,500 (plus default interest) as of August 2, 2022. It also passed the tax on to Ms. Y at the end of August 2022.

On September 1, 2022, Ms. Y subsequently declares the non-cash benefit of CHF 149,999 to the cantonal tax administration B for the 2020 tax period. In this context, she also claims a refund of the withholding tax of CHF 52,500.