Taxation of the Acquisition of Registered Shares with Transfer Restrictions by a Company

Facts

X AG is active as an intermediary in the money and capital markets as well as in related areas. Its share capital amounts to 1.5 million Swiss francs (1,500 registered shares at 1,000 Swiss francs each). The transferability of the shares is restricted according to the articles of association. As of March 30, 2003, X AG held 190 of its own shares (12.66% of the share capital).

The Federal Tax Administration (FTA) informed X AG that as of March 30, 2003, a withholding tax claim of 60,200 Swiss francs had arisen from a partial liquidation, as it had exceeded the 10% limit of its own shares for a period of two years at that time. The Federal Administrative Court dismissed X AG's appeal.

Considerations

The Federal Supreme Court dismisses X AG's appeal. According to Art. 4a(1) of the Federal Act on Withholding Tax (WTA), the acquisition of own equity interests is subject to withholding tax if the framework of Art. 659 of the Swiss Code of Obligations (CO) is not observed. Art. 659(2) CO provides that registered shares with transfer restrictions acquired in excess of 10% of the share capital must be sold or cancelled by a capital reduction within two years.

The reference in Art. 4a(1) WTA to Art. 659 CO also covers its two-year deadline. If this deadline is not met, the withholding tax liability is already triggered at the time of the repurchase.…