SWITZERLAND Law and Practice Contributed by: René Matteotti, Monika Bieri, Daniel Schönenberger and Caterina Colling-Russo, Tax Partner AG
ry for withholding tax purposes were rejected in December 2024, so the direct beneficiary theory will in principle continue to apply in the future. Foreign beneficiaries may request a full or partial refund of the withholding tax based on the appli - cable double taxation agreement (DTA). Howev - er, the application of the direct beneficiary theory regularly limits the treaty relief in cases where the direct beneficiary is not the direct shareholder. If specific conditions are met, the law entitles companies to fulfil the withholding tax liability by notification instead of paying the tax. In the case of deemed dividends, however, the application of the notification procedure is granted only very reluctantly. The notification procedure is not applicable in the case of deemed dividends to sister companies. In these cases, the full WHT has to be paid to the SFTA, the WHT has to be shifted (invoiced) to the beneficiary and the ben - eficiary has the right to get a (partial) refund if the respective conditions based on the respective DTA are met. If the notification procedure is not available, not only the full withholding tax but also interest on late payment of 5% per annum will be due. However, there are ongoing discus - sions about extending the notification procedure for Swiss WHT on deemed dividends within an international group. Stamp tax duty Regarding stamp duties, the arm’s length prin - ciple is only applied in certain cases. In princi - ple, as in the case of withholding tax, the direct beneficiary theory also applies to the stamp duty, which means that only hidden capital con - tributions made directly by shareholders to the corporation are subject to the 1% stamp duty. In particular, this has the consequence that contributions to sister companies do not trig - ger stamp duty. Also, no stamp duty is triggered for so-called benefits periodically granted to the
subsidiary, as is the case, for example, where the shareholder charges an interest rate that is too low according to the arm’s length principle for the loan granted to the subsidiary. Value added tax (VAT) The Federal VAT Act, in contrast to the above- mentioned legislation, explicitly states that transactions between related parties have to be at arm’s length. For VAT purposes, a related party is to be assumed if a shareholder holds at least 20% of the nominal share capital or an equivalent participation, or in the case of foun - dations and associations with which there is a particularly close economic, contractual or per - sonal relationship. Regarding the determination of the arm’s length transfer prices for VAT purposes, it can gener - ally be referred to the principles applicable for corporate income tax. However, according to administrative practice in specific cases, the arm’s length price can be calculated on a lump- sum basis. If, for example, a holding company does not have its own personnel to effectively manage the holding company and that manage - ment is carried out by personnel of its subsidiar - ies, the arm’s length remuneration can be set at 2% or 3% of the average total assets held by the holding company. Furthermore, it should be noted that in relation to VAT, the SFTA, according to case law and in contrast to corporate income tax, can challenge the prices determined between related parties without first having to prove that the agreed remuneration violates the arm’s length principle and that such a violation was obvious (see above comments on corporate income tax). If the SFTA does not agree with the prices set by the tax - payer and the self-declaration respectively, the taxpayer has to prove that the prices nonethe -
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