Refund of Withholding Tax in the Event of Capital Reduction

Facts

The applicants, consisting of the welfare fund [A.] , the foundation [B.] , the foundation [C.] , the welfare fund [D.] , and the pension fund [E.] , held a total of 725,000 bearer shares of [X.] Holding AG. In January 2004, the [Y.] Bank contacted the applicants and asked if they would be willing to offer some of their [X.] shares for the purpose of reducing the capital of [X.] Holding. The applicants agreed to offer shares from their holdings, but wanted to acquire the same number of [X.] shares again.

On January 12, 2004, the [Y.] Bank sold the applicants a total of 195,000 [X.] shares at the market price of CHF 84.35 per share. On January 20, 2004, the [Y.] Bank purchased 195,000 [X.] shares on behalf of and for the account of [X.] Holding at a price of CHF 84.75 per share from the applicants. The [Y.] Bank deducted a withholding tax of 35% from the sale price (after deducting the nominal value of CHF 1.-- per share) in each case.

[X.] Holding destroyed the aforementioned 195,000 bearer shares on February 18, 2004, as part of a capital reduction. During the course of 2004, the [Y.] Bank again contacted the applicants and asked if they would be willing to offer some of their [X.] shares for the purpose of reducing the capital of [X.] Holding. The applicants again agreed to offer shares from their holdings, with the intention of acquiring the same number of [X.] shares again.

On July 19, 2004, the [Y.] Bank sold the applicants a total of 500,000 [X.] shares at the market price of CHF 77.-- per share. On the same day, the [Y.] Bank purchased a total of 500,000 [X.] shares on behalf of and for the account of [X.] Holding at a price of CHF 78.-- per share from the applicants. The [Y.] Bank again deducted a withholding tax of 35% from the sale price (after deducting the nominal value of CHF 1.-- per share) in each case.

The applicants requested a refund of the withholding tax totaling CHF 19,190,937.50 in 2005. The Federal Tax Administration (FTA) initially granted the requests, but later demanded that the applicants repay the refund amounts. The applicants appealed against the FTA's decisions and requested that they be refunded the withholding tax totaling CHF 19,190,937.50.

Considerations

The Federal Supreme Court upheld the appeal in public law matters and overturned the judgment of the Federal Administrative Court of November 5, 2008. The FTA was instructed to refund the applicants the withholding tax totaling CHF 19,190,937.50, plus interest of 5% from June 28, 2006.

The Federal Supreme Court concluded that the criteria for assuming tax evasion by the applicants were not met. The applicants therefore…