The Swiss Federal Court developed in its longtime practice conditions under which tax avoidance is assumed. The criteria need to be fulfilled cumulatively:
- The structure or proceeding must be bizarre and against any economic common sense.
- The structure/proceeding can only be explained by the possibility to save taxes.
- An actual considerable tax saving must result from the structure/proceeding.
If tax avoidance is assumed, foreign profits can be taxed in Switzerland, and the benefits of Swiss double tax treaties or the refund of Swiss WHT can be denied.
In addition, in order to benefit from a Swiss double tax treaty, it must be proven that the requesting party is the beneficial owner. This principle is also applied for tax treaties in which no specific beneficial owner clause is included.
In 1962 Switzerland introduced a unilateral anti-abuse decree in order to discourage non-Swiss persons from taking advantage of the Swiss treaty network. The general anti-abuse rules were substantiated in several circular letters published by the Swiss feral tax authorities (1962, 1999, 2010). The rules of the anti-abuse decree and the respective circular letters do in general only apply on payments from foreign companies to a Swiss resident company which is directly or indirectly foreign controlled and the foreign withholding taxes should be reduced or recovered based on a Swiss double tax treaty. The rules state several requirements and tests in order to clarify whether a Swiss resident company under foreign control can apply for the benefits of a Swiss DTT (restricted distribution to non-Swiss residents, restricted non-distribution of profits, abusive fiduciary relationships and foreign-controlled family foundations). It is usually also possible to clarify the issue beforehand in an advance tax ruling with the tax authorities.
It has to be considered that special LOB-clauses of specific double tax treaties override the rules of the anti-abuse decree. Under the following link the respective DTTs with LOB-clauses are listed:
- Weitere Informationen / FAQs
- Liste der Abkommen mit Missbrauchsbestimmungen
As mentioned above, the anti-abuse decree is generally not applicable if Swiss withholding taxes should be reduced or refunded based on a Swiss double tax treaty. In such a case the more general rules regarding tax avoidance and beneficial ownership addressed above apply.