SWITZERLAND Law and Practice Contributed by: Joseph Merhai, Thomas Pasquier and Laurent Schenker, Aegis
5.3 Blacklists and Non-Cooperative Jurisdictions
includes, for example, residence concepts such as the place of effective management (see 2.5 Tax Resi- dence of Legal Entities ). With respect to WHT, the Withholding Tax Act includes an explicit anti-abuse rule: a refund is excluded in abusive situations, notably where a Swiss-resident company is interposed to obtain a refund that would not be available to the foreign economic beneficiary. In practice, this provision is applied in various situa - tions defined by the administrative practice, such as “international transposition”, “national converter” and comparable arrangements. Case Law In addition, several theories have been developed by the SFSC against tax evasion in cross-border situa - tions. These mechanisms allow the Swiss tax authori - ties to tax all or part of a company’s profits or an indi - vidual’s income, to prevent abusive arrangements and ensure taxation that reflects economic reality. These concepts allow the tax authorities to allocate income or profits differently from the legal form chosen by the taxpayer. Key examples include the following. • Transfer pricing adjustments: remuneration in related-party cross-border dealings may be cor - rected under the arm’s length principle. If a Swiss company pays excessive remuneration to a related foreign entity, said remuneration may be adjusted, leading to an increase of the Swiss taxable profit. • Mandate theory: where a foreign company effec - tively acts as an agent for its Swiss parent com - pany, the profit realised at the level of the foreign entity may be attributed to the Swiss parent, by reference to a mandate relationship. • Tax avoidance/ Durchgriff depending on the circum - stances, the authorities may rely on tax evasion concepts (see 5 .1 Definition and Identification of Tax Fraud, Evasion, Tax Avoidance and Abusive Schemes ) and look-through ( Durchgriff ) approach - es to disregard arrangements that do not reflect the underlying economic substance.
Switzerland does not maintain a list of non-cooper - ative or high-risk jurisdictions for tax purposes that would automatically trigger specific income tax con - sequences merely because a counterparty is located in a particular jurisdiction. However, in practice, transactions involving entities in low-tax or offshore jurisdictions are typically sub - ject to increased scrutiny by Swiss tax authorities, irrespective of whether a jurisdiction is on a formal “non-cooperative” list. In such cases, SFSC case law may require the taxpayer to substantiate the arrange - ment more extensively and, depending on the circum - stances, may effectively shift the burden of proof to the taxpayer. 5.4 Reporting Obligations and Disclosure Regimes In Switzerland, the primary reporting obligation is the annual filing of a complete tax return, in which taxpay - ers must disclose all relevant facts, including domes - tic and foreign income and assets. Where the tax authorities have indications that a tax return or a final assessment is incomplete, they may open proceedings to determine back taxes ( procédure en rappel d’impôts/Nachsteuerverfahren ) and, where appropriate, initiate criminal proceedings in parallel. The back-tax procedure broadly follows the princi - ples of the ordinary assessment procedure: the tax administration sets out the elements indicating an incomplete assessment, grants the taxpayer the right to be heard and, if the matter is not clarified in the tax - payer’s favour, issues an additional tax assessment. In addition, the WHT (see 3.3 Passive Income ) func - tions as a structural compliance mechanism designed to encourage proper declaration of taxable income and assets. Finally, international reporting and exchange-of-infor - mation mechanisms (see 7.1 Legal Framework for Administrative Co-Operation ) can, in practice, trigger follow-up enquiries and tax audits.
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