Forfeiture of the right to reimbursement (old law)

Since January 1, 2019, the new Art. 23 VStG has been in force, which has fundamentally changed the prerequisites of the refund claim of WHT . However, for withholding tax claims that arose before 1 January 2014, the old law or the old Jurisprudence still applies (see 2C_397/2017 of 9 May 2019), which is explained below.

The Federal Supreme Court decision 2C_87/2018 of 6 February 2018 concerns a married couple who stated their participation in the former C. AG in their 2014 tax return, but not the dividend distributed to them by C. AG. When the tax authorities of the Canton of Berne enquired about the tax obligations in the course of processing the 2014 tax return, they wrote in their e-mail of 23 August 2016 that the declaration of the dividend had been omitted unintentionally. The tax administration of the Canton of Berne and the Tax Appeal Commission of the Canton of Berne therefore considered the right to reimbursement of the withholding tax to be forfeited.

In the Federal Supreme Court decision 2C_104/2018 of 19 February 2018, taxpayer A. declared her participation in the company B. AG in her 2014 tax return, but not the dividend of CHF 50'000 she received from B. AG. Neither did she attach any documents to the tax return from which the dividend would have been evident. After the tax office of the Canton of Zurich inquired about the dividend in the course of processing the tax return, the taxpayer sent the form 103 to the tax office, which, however, concerned the 2014 financial year (with the dividend due in the 2015 tax period). The tax office of the Canton of Zurich and the Tax Appeal Court of the Canton of Zurich considered the claim for a refund of the withholding tax of taxpayer is also considered forfeited here.

In the Federal Supreme Court decision 2C_117/2018 of 5 March 2018, a married couple declared their assets and income in their 2014 tax return and simultaneously submitted a withholding tax reimbursement claim of CHF 147'080.54, but attached an incomplete tax list of Deutsche Bank to the tax return, which only covered the period from 1 August to 31 December 2014. Only after being requested to do so by the cantonal tax office of Zurich as part of the assessment work, did the married couple submit a tax register covering the period from 1 January to 31 July 2014. The tax office of the Canton of Zurich found that income subject to withholding tax in the amount of CHF 92'404.44 (withholding tax = CHF 32'341.55) had remained undeclared. As a result, the cantonal tax office set the withholding tax refund claim at CHF 147'080.50, but refused the claim to the CHF 32'341.55. The Tax Appeals Court of the Canton of Zurich also approved this action.

Spontaneous initial or subsequent declaration requires

The Federal Supreme Court upheld the cantonal tax authorities in all three cases and dismissed the taxpayers' appeals. In the application and interpretation of Art. 23 VStG, the court continued to adhere to the long-standing practice: The claim of an individual for a refund of WHT is forfeited if the taxpayer does not spontaneously declare the income subject to withholding tax in the next tax return after the payment is due, or at least spontaneously supplements the submitted tax return early enough for the income to be taken into account by the assessment authority before the final assessment. The direct tax obligation to cooperate thus requires a spontaneous initial declaration in the context of the tax return or at least a spontaneous subsequent declaration. If, on the other hand, the declaration is only made following an intervention by the assessment authority, the taxpayer can rightly be accused of imprudence in breach of duty or at least of negligence, which is sufficient to reject the claim for a refund.

No obligation to examine the tax authorities

In all three decisions, taxpayers tried to argue with the help of the Federal Supreme Court decision 2C_637/2016 of 17 March 2017 that, with little clarification effort, the assessment authority had a duty to investigate, which would lead to a forfeiture push back. However, the Federal Supreme Court clearly denied this in the above-mentioned cases. In decision 2C_637/2016, it was decisive that the assessment authority was able to conclude the existence and amount of the dividend on the basis of a document enclosed with the tax return without further effort. In 2C_87/2018 and 2C_104/2018, however, no documents were attached to the tax return and in 2C_117/2018 a Deutsche Bank tax inventory was attached, but it was incomplete, so that inquiries about the first seven months of 2014 were unavoidable on the part of the assessment authority. A «spontaneous» declaration within the meaning of Art. 23 VStG could therefore not be attained here either. Moreover, the legal equality is not infringed if, unlike in other cantons, no documents have to be submitted with the tax return in the Canton of Berne and, consequently, the assessment authorities can't extrapolate a missing statement in the declaration from the documents.

The argument that the declaration would not have changed the final tax burden is also insufficient, since Art. 23 VStG is not linked to the success of the tax reduction, but purely to the behaviour of failing to report.

Revision of Art. 23 VStG

In 2C_87/2018 and 2C_104/2018, the taxpayers referred to the intended revision of Art. 23 VStG, which provides for certain simplifications and is also to apply retroactively. Nevertheless, in the present cases, the Federal Supreme Court must apply the withholding tax law as it was applicable when the taxable supply became due, i.e. Art. 23 VStG in the original version of October 13, 1965.

The revision of Art. 23 VStG has now entered into force on 1 January 2019 wiht retroactive effect on all open cases since 2014. Read our article on the new jurisdiction.

Exaggerated formalism

Even if taxpayers find this strict declaration obligation and the hard Jurisprudence of the Federal Supreme Court rather an exaggerated formalism, which was also criticized in 2C_117/2018, one must nevertheless be aware that the declaration obligation in the sense of Art. 23 VStG is very important for our tax system. Thus, it is essential that in tax law, as a typical area of mass administration, the tax authorities may assume that the tax returns are submitted correctly and completely. To demand an additional duty of investigation from them in the face of all the information overload would be disproportionate. Thus, as the Federal Supreme Court emphasizes, Art. 23 VStG does not serve a mere end in itself and complicate the realization of substantive law in an untenable manner, but, on the contrary, serves our protectable interest in the lawful collection of taxes.

Final remark

Even if the internet and electronic recording of tax data in the tax return make it much easier to meet tax obligations today, all electronic aids are of little use if the preparatory work for the tax return, namely the collection and organization of all receipts and information, is inadequate. The computer-aided recording of tax data does not exempt you from properly organizing and systematically collecting the necessary receipts - preferably on an ongoing basis and throughout the year. If this is not done, missing information and documents entail, among other things, the risk of forfeiting a refund claim, as in the present cases. With the revision and the new Art. 23 para. 2 VStG, the legislator has now made some concessions to taxpayers. As long as you negligently (i.e. not intentionally) fail to declare something and the dividends are declared or added by the tax authorities before the assessment procedure has been legally concluded, you are off the hook and you are entitled to a refund.

Other recent Federal Court decisions on the same topic: 2C_612/2017 of 7 May 2018, 2C_580/2018 of 10 July 2018, 2C_56/2018 of 5 October 2018, 2C_397/2017 of 9 May 2019.