Rejection of the refund of withholding tax to a Danish bank due to lack of effective beneficial ownership

Facts

The X. Bank headquartered in Copenhagen applied to the Swiss Federal Tax Administration (FTA) for a refund of withholding tax in connection with dividend payments from Swiss companies in the years 2006 to 2008. The FTA rejected the refund applications for 2007 and 2008 and demanded the repayment of an amount of CHF 37,856,735.88 for 2006, as the X. Bank was not the effective beneficial owner of the dividends.

The Federal Administrative Court partially upheld the appeal of the X. Bank and obliged the FTA to grant the refund applications for 2007 and 2008. Both the FTA and the X. Bank appealed against this judgment to the Federal Supreme Court.

Considerations

The Federal Supreme Court concluded that the X. Bank cannot be considered the effective beneficial owner of the dividends. The following points are decisive:

• The criterion of "effective beneficial ownership" is implicitly contained in the Double Taxation Agreement between Switzerland and Denmark. This criterion serves to assess the intensity of the relationship between a taxpayer and a tax object.
• The X. Bank was obliged to pass on the entire value development (capital gain and dividends) on the Swiss shares to its swap counterparties. This created a dependency between the receipt of the…