SWITZERLAND Law and Practice Contributed by: René Matteotti, Monika Bieri, Daniel Schönenberger and Caterina Colling-Russo, Tax Partner AG
subject to Swiss WHT rules. Only in July 2016 was the WHT due paid. Starting in 2018, the SFTA opened criminal pro - ceedings for WHT purposes against an unknown entity. Later, the proceedings were extended to the taxpayer’s controller, who was accused of failing to fulfil the WHT obligation for 2014, despite knowing since the beginning of 2015, based on the compromise with the cantonal tax authority, that the interest rate was not at arm’s length. An external adviser of the firm was charged with incitement, on the grounds that he had allegedly induced the business controller not to file a declaration. The Federal Supreme Court supported the argu - ments of the cantonal court and confirmed the business controller’s conviction. The adviser, on the other hand, was acquitted of the incitement charge. According to the Fed - eral Supreme Court, the adviser merely fulfilled his mandate by defending the contested inter - est rate before the tax authorities and analysing potential tax risks, without prompting the con - troller to neglect the WHT declaration. It could not be proven that the adviser had instigated the controller. This assessment was mainly made due to the fact that a memo prepared by the adviser, which stated that the WHT risk was high, has been sent to the controller after the due date of the WHT. This case makes it clear that employees can face criminal prosecution if they violate tax regula - tions. Due to his role and the course of events, the taxpayer’s controller was clearly aware that the interest payments were not at arm’s length and therefore constituted a declarable hidden dividend. He failed to make the self-declara - tion required by law – according to the Federal
Supreme Court at least with contingent intent. The personal fine of CHF8,000 was confirmed. Decision of the Federal Supreme Court (BGer 9C_690/2022) The Federal Supreme Court case 9C_690/2022 involved a Swiss entity that received intra-group financing from its parent company at 2.5% per annum (unsecured loan) and 3% per annum (credit line). During the cantonal assessment, the Zurich Tax Administration deemed 1.08% per annum to be the arm’s length interest rate, based on its own benchmarking analysis (versus the safe haven interest rates of 2% per annum for 2014 and 1.5% per annum for 2015. The taxpayer determined the 2.5% per annum interest rate starting with a 0.75% per annum reference rate, adding a 0.25% per annum com - mission for the remuneration of transactional services and then adding 150 basis points as an individual market risk premium. It seems, however, that the taxpayer did not prepare a benchmarking study according to the prerequi - sites of the OECD Transfer Pricing Guidelines. The Zurich Tax Administration, however, based its calculation on the parent’s refinancing costs, referencing a publicly issued bond at 0.83% per annum. In addition, it took into account a mark- up of 0.25%, which was applied analogous to the safe haven circular compensating the financ - ing function, arriving at an arm’s length interest rate of 1.08% per annum. The lower court initially ruled that only the inter - est rate exceeding the safe haven maximum interest rates of 2% (2014) and 1.5% (2015) constituted a hidden dividend distribution. On appeal, the Federal Supreme Court clarified that tax authorities may (but need not necessarily) apply a lower than arm’s length interest rate if
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