Special issues in trust and foundation structures

Case 1: Refund of withholding tax to FL Foundation

1. facts of the case

The Liechtenstein Family Foundation "pro filiis legitimis" was established in 1928(foundation). The circle of beneficiaries consists of the male (legitimate) descendants of the founder.

The foundation is properly taxed in FL (i.e. no PVS status). The founder, last resident in Germany, has died in the meantime. Two of the three beneficiaries are resident in Germany and one in Monaco. The foundation has held 20% of the shares in a domestic corporation for several years, which makes regular dividend distributions.

Question

Is the foundation entitled to a refund of withholding tax or is the reporting procedure applicable?

2. variants

2.1 Variant 1

How would the case be assessed if one of the three beneficiaries were resident in Switzerland?

2.2 Variant 2

How would the case be assessed if the board of trustees of the foundation is composed of a majority of beneficiaries or if the beneficiaries had a fixed legal claim to benefits? (Assumption: the foundation receives dividends of CHF30 million of which CHF15 million are distributed to the beneficiaries in Germany, Switzerland and Monaco).

2.3 Variant 3

SwissCo has retained its profits since 2014, only to distribute them after the DBA-FL came into force on December 22, 2016. Does this change anything?

2.4 Variant 4

The (non-controlled) foundation had PVS status until December 31, 2022 and has only been subject to ordinary taxation since January 1, 2023. As of December 31, 2022, the Foundation has distributable non-operating funds in the amount of CHF 30 million.

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Case 2: Refund of withholding tax to Underlying Company

1. facts of the case

As in case 1, the (non-controlled) Liechtenstein foundation now holds the participation in SwissCo via a corporation(LuxCo) domiciled in Luxembourg (where it is subject to ordinary taxation). LuxCo has neither functional nor personnel substance. The self-financing ratio is 1%.

 Question

- Is LuxCo entitled to a refund of withholding tax or to apply the reporting procedure?

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2. variants

2.1 Variant 1

Now LuxCo is held by a Jersey trust. As the beneficiaries resident in Germany, Monaco and Switzerland have possibilities to influence the investment and distribution strategy of the trust, the trust is assessed transparently by the FTA (and the cantonal tax authorities of the domestic beneficiary) and the trust assets are attributed to the beneficiaries.

2.2 Variant 2

How would the case be assessed if LuxCo had a self-financing ratio of 30%?

2.3 Variant 3

How would variant 2 be assessed if the beneficiaries were resident in the USA, Monaco and Switzerland?

2.4 Variant 4

How would variant 3 be assessed if LuxCo only held a stake of less than 10% in SwissCo and had a self-financing ratio of just 1%?

2.5 Variant 5

How would the case be assessed if the Underlying Company was domiciled in Jersey(JerseyCo) and the German tax administration treated not only the trust but also the Underlying Company in a transparent manner and taxed the dividends received by JerseyCo from SwissCo?

Case 3: Foundations and stamp duties

1. facts of the case

The (tax-exempt) Foundation X., established in 1979, runs a popular (and therefore profitable) dance and concert venue in Sissach (BL). The profit from this business is used to pursue the charitable purpose of the foundation, which is to promote regional cultural exchange. In the future, it intends to manage this business (market value: CHF 5 million) through an operating company (AG), since this was made a condition for tax exemption by the cantonal tax authorities. Therefore, the business will be contributed in kind to X. AG (contribution to the share premium).

Question

Is the contribution in kind to X. AG subject to the issue tax?

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Case 4: Assistance on request in trust structures

1. facts of the case

In October 2018, the Indian tax administration (Ministry of Finance; MoF) requested the FTA, based on Art. 26 DTA-IN (SR 0.672.942.31), to provide various more detailed information on A. by way of administrative assistance. The request for administrative assistance related to account relationships with Bank C. and was aimed at determining income taxes. The MoF argued that there was an economic link between A. and accounts at Bank C. The MoF was not aware of any such link.

The documents to be forwarded related to accounts held indirectly - i.e. via an underlying company - by a trust T., for which A. was listed as a beneficiary at the bank.

The FTA granted the request. The Federal Administrative Court, appealed to by the parties concerned, partially upheld the appeal and ordered the FTA to provide administrative assistance to the MoF (only) to the extent that it had to disclose the type of trust involved in Trust T., that the party concerned (A.) was listed as a "beneficiary" of this trust and that he had not received any distributions from this trust during the period covered by the request. The FTA defended itself against this before the Federal Supreme Court.

Questions

1. What are the material requirements for a request for administrative assistance according to the OECD standard?
2. What is meant by the requirement of probable materiality of administrative assistance?
3. A. relies on the fact that Trust T. is an "irrevocable discretionary trust", which is why the account documents are not to be handed over. In particular, A. cites the case law of the Indian Supreme Court, which has ruled that irrevocable discretionary trusts cannot be credited to their beneficiaries for income tax purposes as long as no payments have been made to them. Does A. succeed with his objection?
4. What limits must generally be taken into account in the case of administrative assistance upon request? What problems could arise in the present case?