SWITZERLAND Trends and Developments Contributed by: René Matteotti, Monika Bieri, Daniel Schönenberger and Caterina Colling-Russo, Tax Partner AG
However, the company did not proactively notify the SFTA of the resulting WHT liability arising from the hidden dividend distribution. The WHT was only declared and paid in July 2016, well after the 30-day deadline prescribed by law for such self-declaration. In 2018, the SFTA initiated criminal proceedings against unknown persons for WHT violations. These were later extended to include the com - pany’s controller, who was accused of having failed to declare the hidden dividend distribu - tion for tax year 2014 – despite having known by early 2015, based on the agreement with the cantonal tax authorities, that the agreed interest rate was not at arm’s length. The SFTA argued that, through his role and the overall course of events, he must have recognised that the inter - est payments constituted a hidden dividend dis - tribution, triggering a WHT liability that required timely self-declaration. The company’s external tax adviser (the relevant partner of the tax advisory firm involved) was also charged – specifically with incitement to commit a WHT offence. The accusation alleged that the adviser had induced the controller not to submit the required self-declaration to the SFTA concerning the hidden dividend distribution. The Federal Supreme Court confirmed the con - troller’s criminal conviction. It found that he had failed to fulfil the legal obligation to declare a hidden dividend distribution to the SFTA, at least with conditional (eventual) intent. The court held that the controller was aware – or at least accepted the possibility – that the agreed inter - est rate was not at arm’s length and yet failed to act upon this knowledge by making the required
self-declaration to the SFTA. The CHF8,000 fine imposed by the lower court was therefore upheld. The adviser, on the other hand, was acquit - ted of the incitement charge. According to the Federal Supreme Court, he had merely fulfilled his professional mandate by defending the contested interest rate before the tax authori - ties and assessing potential tax risks – without actively prompting or inducing the controller to omit the WHT declaration. The court found that there was no proof that the adviser had insti - gated the offence. This assessment was based in particular on the fact that a memo prepared by the adviser, which stated that the WHT risk was high, had been sent to the controller only after the legal deadline for the self-declaration had already passed. This court case makes it clear that employees can face criminal prosecution if they violate tax regulations. Given his role and the overall course of events, the controller was, according to the court, clearly aware that the interest payments were not at arm’s length and thus qualified as a declarable hidden dividend distribution. He failed to make the self-declaration required by law – and the Federal Supreme Court found that he had done so at least with conditional intent. Conclusion It is clear that there is an increased focus on transfer pricing topics in Switzerland. This not only has effects on taxpayers per se – ie, the corporate body, but can also have penal impli - cations for employees and/or tax advisers of the corporate body, if the respective tax regulations are not adhered to.
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