Judgment of 7 March 2012 - Walder Wyss Ltd.

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A-6537/2010 instance has the same powers of adjudication as the lower instance. However, such rectification is excluded if the infringement of party rights is especially serious. Nor must it give rise to any detriment to the complainant, and rectification should be the exception rather than the rule (inter alia: judgment of the Federal Supreme Court BGE 133 I 201 cons. 2.2; decision of the Federal Administrative Tribunal BVGE 2009/53 cons. 7.3, 2008/47 cons. 3.3.4; A-2925/2010 of 25 November 2010 cons. 1.2.2.3; Häfelin/Müller/Uhlmann, op. cit., ss. 1710-1711). 2. 2.1. The Swiss Confederation levies withholding tax on income generated by moveable capital assets (art 132(2) Federal Constitution and art 1(1). 1 WHTA [Federal Act on Withholding Tax, Verrechnungssteuergesetz, VStG]). This tax applies inter alia to interest, coupon payments, profit shares and other revenues from shares issued by domestic entities (art 4(1)(b) WHTA). The tax is payable by the debtor of the taxable payment (art 10(1) WHTA) and hence, in the case of income from shares, the company distributing the dividends. The taxable payment has the tax amount deducted from it upon being paid, transferred, credited to an account or offset, without regard to the identity of the creditor. In the case of capital revenues the deduction is 35% (art 13(1)(a) in conjunction with art 14(1) WHTA). 2.2. Pursuant to art 24(2) WHTA legal entities are entitled to a refund of withholding tax if they had their seat in Switzerland at the time the taxable payment fell due. Under art 21(1)(a) WHTA, an entitled entity pursuant to art 22–28 WHTA is entitled to a refund of the withholding tax deducted by the debtor if that entity was the beneficial owner of the assets generating the taxable income at the time the taxable payment fell due. Under art 21(2) 2 WHTA a refund is not permissible in any case in which it might result in tax evasion. 2.3. Whereas domestic entities may reclaim the withholding tax levied on income generated by moveable capital assets if they were the beneficial owner of those assets at the time the taxable payment fell due and if refunding the tax does not result in tax evasion (cons. 2.2), different conditions apply to foreign payment beneficiaries. They are entitled to a refund only if a double taxation convention (DTC) concluded between Switzerland and their country of residence so provides (decision of the Federal Administrative Tribunal A-813/2010 of 7 September 2011 cons. 3.1; Maja Bauer-Balmelli, in: Zweifel/Athanas/Bauer-Balmelli [Ed.], Kommentar zum Schweizerischen Steuerrecht 11/2, Basel 2005 [hereinafter: Kommentar VStG], n. 55 ad art 21 WHTA with refs.; Maja Bauer-Balmelli, Der Sicherungszweck der Verrechnungssteuer, unter besonderer Berücksichtigung der Erträge aus Beteiligungsrechten, Diss. Zurich 2001 [hereinafter: Sicherungszweck], pp 167 et seq.; judgment of the Federal Supreme Court 2A.239/2005 of 28 November 2005 cons. 2.2 with ref.). The reason for the difference in treatment is that, for foreign recipients, the withholding tax does not serve the purpose of providing security but rather a fiscal or debit purpose (Bauer-Balmelli, Sicherungszweck, p 107). It follows that, in international situations, art 21(2) WHTA (tax evasion reservation) has no (or no direct) application (decision of the Federal Administrative Tribunal A-2744/2008 of 23 March 2010 cons. 3.3; cf. more tellingly decisions of the Federal Board of Tax Appeals 2003-159 of 3 March 2005 cons. 3e/bb; leaving this question unresolved: judgment of the Federal Supreme Court 2A.239/2005 of 28 November 2005 cons. 3.3.3; cf. also Bauer-Balmelli, Sicherungszweck, p 174, who considers direct recourse to art 21(2) WHTA as completely inadmissible). For the reasons just mentioned, with foreign beneficiaries it is never a case of reimbursing the original withholding tax per se, but rather of quantitatively demarcating the powers of taxation of the two countries (decision of the Federal Administrative Tribunal A-2744/2008 of 23 March 2010 cons. 3.3, with reference to Maja Bauer-Balmelli, Altreservenpraxis ein rechtliches Translation © Walder Wyss Ltd. 10 / 23
A-6537/2010 Argumentarium, in: Forum für Steuerrecht [FStR] 2004 [hereinafter: Altreservenpraxis], pp 204 and 208). Because art 21(2) WHTA applies to refunds of withholding tax to persons with seat in Switzerland (cf. above cons. 2.2), ie to reimbursement of the original withholding tax per se, the (direct) invocation of this tax evasion clause to deny a refund entitlement provided for in a DTC is excluded. In addition, because the DTC forms part of international law, in principle it takes precedence over the WHTA (decision of the Federal Administrative Tribunal A-2744/2008 of 23 March 2010 cons. 1.4; decision of the Federal Board of Tax Appeals 2003-159 of 3 March 2005 cons. 3e/bb; Bauer-Balmelli, Kommentar VStG, n. 58 ad art 21 WHTA; Bauer-Balmelli, Sicherungszweck, p 281; Georg Lutz, Abkommensmissbrauch Massnahmen zur Bekämpfung des Missbrauchs von Doppelbesteuerungsabkommen, Zurich 2005, p 98). 2.4. As a capital-exporting state Switzerland pursues the policy of limiting as far as possible the taxation powers of the source country (decision of the Federal Administrative Tribunal A- 813/2010 of 7 September 2011 cons. 3.1; René Matteotti, ‘Treaty Shopping’ und seine Grenzen in der schweizerischen Rechtsprechung, in: Zeitschrift für schweizerisches und internationales Steuerrecht [zsis]) of 24 October 2008, Zurich 2008 [hereinafter: Treaty Shopping 2008], s. 1 [introduction]). Such conventions arise because the contracting states declare themselves willing on the basis of reciprocity to forego a portion of the assets and income that would be taxable under domestic law in favour of the other contracting state (Matteotti, Treaty Shopping 2008, s. 4.2; Matteotti, Die Verweigerung der Entlastung von der Verrechnungssteuer wegen Treaty Shoppings, in: Archiv für Schweizerisches Abgaberecht [ASA] 75 pp 767 et seq. [hereinafter: Treaty Shopping 2007], p 794; Gerhard Kraft, Die missbräuchliche Inanspruchnahme von Doppelbesteuerungsabkommen, Heidelberg 1991, p 3). 3. Under art 1 DTC-DK the Convention applies to persons and entities resident of Denmark, in Switzerland or in both countries. The term ‘resident’ is defined in art 4(1) DTC-DK. According to that definition, persons ‘resident of one of the contracting states’ are persons that, under the law of that state, are liable to tax therein by reason of its domicile, permanent sojourn, place of management or other similar feature (cf decision of the Federal Board of Tax Appeals of 3 March 2005, 2003-159 cons. 3a). 3.1. Under art 10(1) DTC-DK (in the version relevant to the case at hand of 23 November 1973, AS 1974 1720) dividends paid by a company which is a resident of a contracting state to a person or entity resident of the other contracting state may only be taxed in that other state. Hence dividends paid by a company resident of Switzerland to a person or entity resident of Denmark may only be taxed in Denmark. In accordance with art 26(1) DTC-DK Switzerland may initially levy tax on such dividends (at source), but the tax withheld in this manner must be refunded on application to the extent the levying of such tax is restricted under the terms of the Convention (art 26(2) DTC-DK). That extent is clarified in art 1 O-DTC-DK to the effect that the relief of tax on dividends and interest income envisaged in art 10 DTC-DK consists on the Swiss side in a full refund of the withholding tax retained. Under art 26(4) DTC-DK, applications for tax refunds must always bear the official certification of the state of which the taxpayer is resident that the conditions of unlimited tax liability in that state are fulfilled (cf. decision of the Federal Supreme Court 2A.239/2005 of 28 November 2005 cons. 2.3). 3.2. As an international treaty within the meaning of art 2(1)(A) of the Vienna Convention of 23 May 1969 on the Law of Treaties (VCLT, SR 0.111; entered into force for Switzerland on 6 June 1990), the DTC-DK is to be interpreted according to the VCLT interpretation rules, subject to the application of more specific rules (decision of the Federal Administrative Tribunal BVGE 2010/7 cons. 3.6.1; BVGE 2010/64 cons. 4.2). Because in its interpretation rules the Translation © Walder Wyss Ltd. 11 / 23
Page 1 and 2: Federal Administrative Tribunal Bun
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Judgment of 7 March 2012 - Walder Wyss Ltd.

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