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Marcus Küpfer

Restitution in national circumstances - current practice and state of affairs regarding Art. 23 VStG

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Workshop on the occasion of the ISIS) seminar on 21 September 2020 entitled "Practical cases on withholding tax and outlook on current developments".

09/2020
The corresponding case solutions can be purchased for CHF
120.00
(introductory price)
be on sale in the shop
The case solutions and other documents can be obtained free of charge in the shop.

Case 1: Refund of withholding tax in case of originally undeclared dividends

Mr X has unlimited tax liability in Canton Z. In the securities register of his tax return 2015, he declared his participation in X AG with a taxable value of CHF 1 million, but without - in contrast to previous years - listing the resulting dividend of CHF 50,000 (due on 15 May 2015).

Mr. X is the sole shareholder and a member of the executive body of X AG with sole signing authority. X AG waives the implementation of the notification procedure in each case due to the administrative expense. As in previous years, Mr. X, in his capacity as a body of X AG, has therefore correctly declared the dividend paid as of 15 May 2015 to the FTA on Form 103 and has paid and passed on the withholding tax.

With the assessment ruling of 16 August 2016, the tax administration of Canton Z calculated this income on the basis of its own investigations and noted that Mr. X admittedly "erroneously" did not declare the dividend. However, in the absence of a proper declaration of the income values, the right to a refund of the withholding tax would no longer apply. The Cantonal Tax Administration Z maintained this view in its objection decision of 2 February 2017.

Before the cantonal appellate court, Mr. X applied not only for a refund of the withholding tax but also for the suspension of the proceedings, since the partial revision of the Federal Law of 13 October 1965 on Withholding Tax (VStG; SR 642.21), which is currently under parliamentary discussion, would in all probability also have an impact on the facts of the case. The instructing judge of the Appeals Court approved the application for suspension as of 15 April 2017. After the provision of Art. 23 VStG was amended with effect from 1 January 2019, the instructing judge lifted the suspension of the present proceedings on 1 March 2019.

Questions

  1. What are the general conditions for the refund of withholding tax for domestic natural persons?
  2. Are these conditions fulfilled in the present case? In particular:
  • Did Mr X make a proper declaration?
  • Does Article 23(2) of the VStG apply in this case in terms of time and subject matter?

Case 2: Case study: Refund of withholding tax in case of originally undeclared dividend

Mr Reich has unlimited tax liability in Canton B. In the list of securities in his tax return 2015, he declares, among other things, 10,000 registered shares of X AG with registered office in Zurich. In his list of securities, Mr. Reich lists these shares with a taxable value of CHF 10,000,000, but does not list the gross dividend of 1,100,000 gross due in this tax period. A withholding tax of 35 percent was deducted on this dividend, resulting in a net dividend of CHF 715,000.

With the assessment decree of 5 June 2017, the tax administration of Canton B offset the gross dividend of 1,100,000. It also informed Mr. Reich that the claim for a refund of the withholding tax of CHF 385,000 had been forfeited due to the lack of a proper declaration. Mr Reich objected to this without success. The Cantonal Tax Appeal Commission also dismissed Mr. Reich's appeal in application of the then applicable Art. 23 of the Federal Taxation Act without further clarification of the facts of the case in a ruling dated 1 May 2018.

On 30 May 2018, Mr Reich applied to the Federal Supreme Court for the proceedings to be stayed. The instructing judge granted this request on 15 July 2018 in accordance with the application, and the suspension was lifted again on 1 February 2019. In the matter, Mr Reich applied to the Federal Supreme Court for a refund of the withholding tax on the 2015 dividend of X AG in the amount of CHF 385,000.

questions:

  1. Have all the conditions for the refund of withholding tax been met?
  2. How could the Federal Supreme Court assess the facts of the case?

Case 3: Refund of the withholding tax on benefits in kind not originally declared

Muster AG is wholly owned by Mr. Muster, with unlimited tax liability in Canton B. During 2018, the FTA will carry out an audit of Muster AG for withholding tax and stamp duties for the years 2013 to 2017. The following benefits in kind result according to the final account of the FTA of 10 February 2019:

  • "Securities." Model AG held a portfolio of securities. The sole shareholder will make a "private withdrawal" in 2013 by transferring securities with a value of CHF 70,000 from the securities portfolio of Muster AG to a securities portfolio of the sole shareholder. Subsequently, Muster AG will write off the corresponding securities in full. The withholding tax amounts to CHF 24,500 in the event of a subsequent transfer to Mr. Muster
    .
  • "Gold bullion." Muster AG holds gold in a bank safe in its name in the amount of CHF 300,000. The sole shareholder makes a "private withdrawal" in 2014 by physically removing the gold from the safe and depositing it in his private safe. Subsequently, Muster AG writes off the corresponding amount in its accounts. The withholding tax amounts to CHF 105,000 in the event of a subsequent transfer to Mr. Muster.
  • "Own shares": Model AG holds own shares which have not yet been amortised for tax purposes (see Art. 4a VStG). In January 2017, the sole shareholder buys seven of these shares from Muster AG at the tax value of CHF 120,000 per share at the end of 2016, which has just been provided by the cantonal tax authorities, with a net asset value of CHF 350,000 per share as at 31 December 2016, which is why the difference "net asset value as market value, less lower net asset value tax value" represents a payment in kind totalling CHF 1,610,000. The withholding tax amounts to CHF 563,500 in case of a subsequent transfer.

On the basis of the notification of these three benefits in kind by the FTA to the cantonal tax administration responsible for Mr. Muster, the latter clarified whether Mr. Muster had already declared the relevant income for direct tax purposes. Since this was not the case, the cantonal tax office initiated corresponding post-tax proceedings against Mr. Muster.

questions:

  1. Have all the conditions for the refund of withholding tax been met?
  2. Does Article 23(2) of the VStG apply in this case in terms of time and subject matter?
CHF
120.00

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