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06 February 2019 / news

Financial institutions with pending Swiss withholding tax refund claims: update

Financial institutions with pending Swiss withholding tax refund claims associated with supposed dividend or interest arbitrage transactions are often confronted with detailed questions raised by the Swiss federal tax administration on topics like use of hedging instruments, counterparties to transactions, pricing of transactions, cash flow analysis and economic rationale of transactions.

A last-minute reprieve: continued EU market access for Swiss exchanges

In particular, market makers, high frequency traders and liquidity brokers with pending Swiss withholding tax refund claims are undergoing a thorough examination of their refund positions. It is likely that the Swiss federal tax administration will pick one case involving a market maker, deny the refund of the Swiss withholding tax in the specific case and process the case through all Swiss courts (Swiss federal administrative court as lower instance, Swiss federal supreme court as final instance). The goal is to have a landmark decision which will then be leading for all other pending Swiss withholding tax refund claims.

It is expected that it takes several years until a final decision by the Swiss federal supreme court will be rendered. This is in line with similar cases, e.g., the landmark cases on beneficial ownership involving two Danish banks claiming refund for Swiss withholding taxes on dividends received on fully hedged Swiss equity positions (see our summary). During this period, the pending Swiss withholding tax refund claims of other market makers, high frequency traders and liquidity brokers will be suspended. Note that there will be neither a positive nor a negative interest on the Swiss withholding tax amount.

It remains difficult for financial institutions with pending Swiss withholding tax refund claims in the context of supposed dividend or interest arbitrage transactions to receive refund of the Swiss withholding tax. This is especially true for market makers, high frequency traders and liquidity brokers which have traded in Swiss equities or bonds during the past years. However, every case must be assessed based on its specific circumstances. Some cases will be less likely scrutinized than others. There are certain criteria and steps to be taken that improve the chances of a successful Swiss withholding tax refund.

In certain constellations, a mutual agreement procedure (MAP) between Switzerland and the state of residency of the person claiming the refund of the Swiss withholding tax, which is based on the applicable tax treaty, can be an additional option to be considered.



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