Withholding Tax – Part 4: Current Case Law

The withholding tax helps to prevent tax evasion in Switzerland. To achieve this goal, it uses a simple consideration, which has been somewhat complicatedly structured. Therefore, Findea explains in a four-part series of articles what withholding tax is exactly and how it works in detail. This final article is dedicated to current jurisprudence in connection with withholding tax.

The first article explained what the withholding tax is. The second outlined how it is collected, and the third, how to get your money back. This last article deals with Current Jurisprudence. In a Federal Court ruling on March 21, 2017 (2C_404/2016), the highest court of Switzerland dealt with the question of what should be understood as a final decision under Art. 12, Para. 1 VstV. Specifically, it concerned A. AG, with a single board member and shareholder, called B. The Federal Tax Administration (ESTV), after an audit, concluded that the withholding tax had not been properly declared during the period 2007-2010. Therefore, it issued an (informal) payment request to A. AG or its auditing office, which was also paid on time. A. AG demanded a contestable order, which was denied by the ESTV.

The central question revolved around the tax refund according to Art. 12 Abs. 1 VstV. It states: "Paid taxes and interests that have not been determined by decision of the ESTV will be refunded as soon as it is established that they were not owed." The Federal Court ruled that in this case the (informal) payment request did not have the character of a ruling according to Art. 5 Abs. 1 VwVG and therefore is not a "decision." Payment requests of the community can have a ruling character. However, in the area of self-assessment tax, where the withholding tax is located, normally no ruling is issued (E. 4.2.2).

The ESTV argued that the term "decision" in Art. 12 Abs. 1 VstV is defined too narrowly. According to their view, the unconditional payment of a payment request also constitutes a decision within the meaning of the law (E. 3.3.1). The Federal Court disagreed with this view. It stated that a mistake about the obligation to pay not only exists when the taxable person erroneously assumes they owe a tax. A mistake also occurs when the person is wrongfully induced to pay by the authority (E. 4.3.3).

An objection is possible against a ruling. If an objection is not filed, the ruling has been accepted and no refund is possible. However, as often happens in the area of self-assessment tax, and like in the case described, if no ruling is issued, an objection is not possible. Therefore, Art. 12 Abs. 1 VstV gives individuals, who have no legal recourse, the chance to reclaim an unjustified tax debt by proving they do not owe it. This legal protection must not be taken away from a person by saying they paid unconditionally (E. 4.3.3).

Thus, the term "decision" does not include the unconditional payment of a tax demand. Findea helps you to keep your taxes simple and straightforward.