Reclaiming withholding tax by persons residing abroad

The withholding tax, which amounts to 35% of a paid-out dividend, can be fully reclaimed by natural and legal persons residing or based domestically. However, if the residence/headquarters is located abroad, the regulations of the respective double taxation treaties apply.

The "A." is a foundation established under Dutch law with its headquarters in the Netherlands and is a shareholder of Swiss corporations. With every dividend distribution, a withholding tax of 35% goes to the Swiss Confederation. This can then be reclaimed by natural and legal persons who had their residence or corporate headquarters in the domestic country at the time of the dividend distribution. In the case of A., as mentioned, this was not the case, which is why it relied on Art. 9 para. 2 lit. a of the Double Taxation Agreement of 1951 between Switzerland and the Netherlands (aDBA CH-NL). This provided that corporations based in the Netherlands could reclaim the entire withholding tax amounting to 35% of the dividends if they own at least 25% of the capital of the company paying the dividends. In other cases, withholding taxes amounting to 20% of the dividends can be reclaimed. A. held less than 25% of the shares of the Swiss dividend-distributing corporation and was not a corporation itself, which is why, according to aDBA CH-NL, only 20% of the dividend was entitled as withholding tax. This was also paid to her by the ESTV. However, A. asserted the non-discrimination clause in Art. 10 para. 1 aDBA CH-NL, which provided that "nationals of one of the two states in the other state shall not be subjected to taxation or any related obligation that is different or more burdensome than the taxation and the related obligations to which nationals of the other state are or can be subjected under the same circumstances." This argument, however, did not convince the Federal Court. The non-discrimination clause is subordinate to the distribution norm in Art. 9 para. 2 lit. aDBA CH-NL: The non-discrimination clause intends to exclude tax discrimination based on nationality or similar reasons. The prohibition does not concern the conflict and other rules contained in the double taxation agreement itself, but pushes back national law in case of conflict. In addition, nationality is not the decisive criterion for the refund, but exclusively residence, which in the case of A. is undoubtedly in the Netherlands.

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