A Holding ApS is the owner of all shares in F. AG, domiciled in G. (Canton of Schaffhausen), which it acquired in December 1999 for a total price of Fr. 1. F. AG produces consumer goods. In accordance with the resolution of the general meeting of F. AG on 30 November 2000, a dividend of Fr. 5,500,000 was distributed. Of this amount, F. Ltd paid Fr. 1,925,000 as withholding tax to the Swiss Federal Tax Administration and the remaining amount of Fr. 3,575,000 to Holding ApS. On 15 December 2000, the latter in turn decided to distribute a dividend of 26,882,350 Danish kroner to C. Ltd.
On 19 December 2000, A Holding ApS submitted an application to the competent Danish authority for a refund of the withholding tax in the amount of Fr. 1,925,000. The Danish authority confirmed the application and forwarded it to the Federal Tax Administration. By decision of 3 April 2003, the Federal Tax Administration rejected the application for a refund of the withholding tax. The reason given was that A Holding ApS was not engaged in any real economic activity in Denmark; it had been established solely for the purpose of availing itself of the benefits of the Agreement of 23 November 1973 between the Swiss Confederation and the Kingdom of Denmark for the Avoidance of Double Taxation in respect of Taxes on Income and on Capital. The appeals filed by A Holding ApS against this decision were dismissed by the Federal Tax Administration in its objection decision of 4 September 2003 and subsequently by the Federal Tax Appeals Commission in its decision of 3 March 2005.
The A Holding ApS filed an administrative appeal with the Federal Administrative Court on 18 April 2005. It requested that the decision of the Federal Tax Appeals Commission be annulled and that the Federal Tax Administration be ordered to pay it the amount of CHF 1,925,000 plus 5% interest thereon since 29 January 2001.
Judgement of the Court of Appeal
The Court found that the Appeals Commission was correct in refusing to refund the withholding tax claimed by A Holding ApS on the grounds of abuse of the agreement. The appeal therefore proves to be unfounded and must be dismissed.
Exceerpt
“3.6.4 The complainant does not meet any of the conditions just mentioned. As the lower court found binding for the Federal Supreme Court (cf. Art. 105 para. 2 OG), it has neither its own office premises nor its own staff in Denmark. Accordingly, it did not record any fixed assets or any rental or personnel expenses. The “director” of the complainant, E. who apparently controls the entire group and is resident in Bermuda, performs all management functions according to the complainant’s own statement of facts and does not receive any compensation for this. Thus, the complainant itself does not carry out any effective business activity in Denmark; administration, management of current business and corporate management are not carried out there. It only has a formal seat in Denmark. Significantly, the complainant also immediately forwarded the dividends to its parent company.
The complainant’s arguments that it also intends to hold other European shareholdings of the entire group are irrelevant. What is decisive is that, according to the above, the complainant ultimately proves to be a letterbox company and that, apart from tax considerations, no economically significant reasons for its presence in Denmark are apparent. The complainant’s objection that, in view of its detailed statements in the proceedings before the court, it is untenable for the Appeals Commission to claim that it [the complainant] “undisputedly” has no facilities and activities at all, does not lead to a different conclusion. The statements in question before the Appeals Commission do not contradict the above findings. The complainant has failed to show what significant activities it carries out in Denmark itself. If, on the one hand, it is established that the person resident in Bermuda carries out all management activities for the holding company and that there are no other staff, it is not sufficient for the complainant to merely allege, in an unsubstantiated manner, that it works with external resources as far as necessary and that the Danish company H. (as the complainant’s auditors) carries out such outsourced functions in a professional manner.
3.6.5 Other reasons that would justify the granting of the advantages of the agreement (cf. n. 19 and 21 of the OECD Commentary on Art. 1 OECD-MA 2003 and 1995 respectively) are also not given here. Even if the aforementioned circular letter 1999 of the Swiss Federal Tax Administration is used for comparison, no contradiction can be ascertained with regard to point 3 (critical with regard to the decision challenged here: Markus Reich/Michael Beusch, Entwicklungen im Steuerrecht, SJZ 101/2005 p. 266). According to that point 3, holding companies that exclusively or almost exclusively manage and finance participations may use more than 50 per cent of the income eligible for treaty relief to meet the claims of persons not entitled to treaty relief, provided that these expenses are justified on business grounds and can be substantiated; holding companies that engage in other activities in addition to managing and financing participations may not use more than 50 per cent of the income eligible for treaty relief (critically: Silvia Zimmermann, Kreisschreiben vom 17. 12.1998 on the abuse decision, StR 54/1999 p. 157 f.). The regulation in the circular presupposes that the company domiciled in Switzerland actually manages and finances the participations from here. From a mirror image perspective – insofar as such a mirror image may be possible at all – this requirement would not be met by the complainant, which is domiciled in Denmark and is a letterbox company, as explained above (E. 3.6.4).
3.6.6 Finally, the model clause listed in point 21.4 of the OECD Commentary on the OECD-MA 2003 would not lead to any other conclusion. According to this clause, the provisions of Art. 10 DTA (dividends) “shall not apply” if “the principal intention or one of the principal intentions of a person who was concerned with the creation or transfer of the shares or other rights in respect of which the dividends are paid was to take advantage of this Article in this way”. With the construction chosen here, it must be assumed, in accordance with recital 3.6.4 above, that obtaining the treaty benefits was one of the main intentions (cf. BGE 110 Ib 287 E. 5a and c p. 292 f.).”
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Tribunal Federal - A Holding ApS 2A 239-2005 28-11-2005