Reduction of the Tax Credit in the Case of Holding Companies

Facts

Company A. Ltd., domiciled in Switzerland, received licensing fees in 2011 totaling CHF 295,347,005.-. Of this amount, CHF 96,374,721.- came from countries with which Switzerland has concluded double taxation agreements (DTAs), where the withholding tax was between 5% and 12.5%. The company requested a flat-rate tax credit of CHF 8,281,057.-. The cantonal tax authorities granted a credit of CHF 3,755,804.-, applying a two-thirds reduction of the tax credit pursuant to Art. 12(2) of the Ordinance of 22 August 1967 on the Flat-Rate Tax Credit (PStAV), on the grounds that the licensing income was only taxed at the federal level due to the holding company status of Company A. Ltd. at the cantonal and municipal levels.

Considerations

The Federal Court first examines the reduction of the tax credit in the case of non-taxation by the cantons and municipalities under domestic law (consid. 3), before analyzing the compatibility with the DTAs (consid. 4 and 5). The Court considers that the delegation of competence in Art. 2(1)(e) of the Act on the Implementation of DTAs does not exclude the reduction of the tax credit provided for in Art. 3(2) in conjunction with Art. 12(2) PStAV (consid. 3.5). The interpretation of the relevant DTAs according to the principles of the Vienna Convention shows that this reduction of the tax credit in the case of non-taxation by the cantons and…