In 2011, a Swiss real estate company “B-WHT SA” within a multinational group received a loan from a related party in Ireland at 3.15% interest.
During a tax audit, this rate was deemed excessive and a revised rate of 2.5% was agreed upon, rendering the 0.65% excess payments a hidden dividend distribution and triggering a withholding tax liability. The company failed to report this liability to the Swiss tax authorities within the required 30 days, only declaring and paying it in July 2016.
In 2018, the tax authorities launched criminal proceedings, eventually targeting the company’s controller with a CHF 8,000 fine for failing to declare the hidden dividend, despite knowing about it by early 2015.
Judgment
The Federal Supreme Court upheld the fine issued to the controller, confirming that he had acted with at least conditional intent.
Excerpt in English
“5.
According to the principle of self-assessment applicable to withholding tax, taxpayers are expected to have specific knowledge of their tax obligations and, therefore, to fulfil them correctly: it is therefore their responsibility, when the tax is due, to submit the prescribed statement accompanied by supporting documents to the FTA without waiting to be requested to do so, and to pay the tax at the same time (see Art. 16 and 38 para. 2 LIA). The formal aspect of the reporting principle means that failure to report and declare tax is in itself considered tax evasion under Art. 61 let. a LIA, regardless of whether the payment of the tax was actually compromised (see judgment 2A.215/1998 of 4 August 1999, consid. 2c; YVES ROBERT, La procédure non-contentieuse en matière de droits de timbre et d’impôt anticipé [Non-contentious proceedings in stamp duty and withholding tax matters], in Les procédures en droit fiscal [Tax law proceedings], 4th ed. 2021, p. 426; HENRI TORRIONE, Les infractions fiscales [Tax offences], in Les procédures en droit fiscal [Tax law proceedings], op. cit., p. 1045). The latter provision punishes anyone who, intentionally or negligently, for their own benefit or that of a third party, evades withholding tax payable to the Confederation.
In the present case, it is not disputed that the taxable income of B.________ SA for the 2014 financial year was not declared within 30 days of the deadline for doing so, i.e. 4 June 2015. The objective elements of tax evasion under Art. 61 para. 1 lit. a LIA are therefore met. As regards the subjective element of the offence, it is clear from the cantonal findings, which are not arbitrary (see supra para. 4), that the appellant was aware of the existence of taxable income that had to be declared voluntarily to the FTA without waiting for an audit. Although his duties included signing the accounts and preparing the company’s tax returns, no declaration of the withholding tax due was made. On the basis of the external circumstances, the previous judges held that the appellant had acted at least with reckless intent within the meaning of Art. 12 para. 2 of the Swiss Criminal Code, speculating on the absence of an audit by the FTA. The appellant does not challenge this assessment, except to argue that he always acted in good faith, as evidenced by his conduct during the cantonal administration’s tax assessment procedure. However, he overlooks the fact that this procedure – known as mixed taxation – is fundamentally different from that relating to withholding tax – known as voluntary taxation – since in the former, the taxpayer and the administration jointly determine the tax due, with the taxpayer having a duty to cooperate, whereas this is not the case in the withholding tax assessment procedure, where the taxpayer must act spontaneously as soon as he fulfils the conditions for liability, which was the case here. In other words, the appellant cannot rely on his cooperation in the mixed taxation procedure to obtain elements in his favour regarding his failure to make a spontaneous declaration. In any event, the cantonal court’s assessment does not appear to violate federal law.”
[…]
“6.2. In the present case, it is clear from the non-arbitrary findings of the contested judgment (see supra, para. 4) that in 2014 the appellant replaced the person responsible for tax matters for Switzerland at B. ________ SA and, as controlling manager, was responsible in particular for signing the accounts and completing the company’s tax returns, as well as co-signing them once they had been approved by the country manager. He was also the company’s contact person in connection with the FTA audit procedure, and it was to him that the FTA notified its assessment. The fact that B.________ SA called upon its auditor, C.________ SA, in connection with the tax issue of excessive interest, and that the appellant always consulted his superiors in this context regarding the proposals made by the auditor, does not alter the role of the person concerned once the existence of a significant monetary benefit became known and the obligation, in accordance with his duties, to declare it spontaneously to the FTA, which he failed to do (see supra consideration 5). In view of these factors, the Cantonal Court was right to find that the appellant was not merely an instrument in the hands of the perpetrators.
6.3. Ultimately, by concluding that the appellant was criminally liable for withholding tax evasion for the 2014 financial year of B.________ SA, the Cantonal Court did not violate Art. 6 para. 1 DPA.”
Click here for English translation
Click here for other translation