Refund of Withholding Tax in Case of Tax Evasion

Facts

The Federal Tax Administration and Bank [A. AG] disputed the refund of withholding tax of CHF 14,140,000.--. Bank [A. AG] had acquired 20,000 bearer shares of [B. AG] in 2000 and sold them back to [B. AG] after 18 days. [B. AG] had passed on the withholding tax to the purchase price. The Federal Tax Administration refused the refund of the withholding tax, as it considered the transactions to be tax evasion.

Bank [A. AG] filed a complaint with the Federal Tax Appeals Commission, which granted it. The Federal Tax Administration filed an administrative appeal with the Federal Supreme Court.

Considerations

The Federal Supreme Court examined whether Bank [A. AG] was entitled to a refund of the withholding tax. It found that Bank [A. AG] had the right to use the asset generating the taxable income at the time the taxable performance was due.

However, the Federal Supreme Court also examined whether the refund of the withholding tax would lead to tax evasion. It found that the transactions between [B. AG] and Bank [A. AG] were unusual and that [B. AG] wanted to save the withholding tax. The Federal Supreme…