Tax Treaty Case Law around the Globe 2021

S. 140I. Introduction

On 5 May 2015, the Swiss Supreme Court decided two landmark cases on beneficial ownership, denying refunds of Swiss dividend withholding tax to two Danish banks. It ruled that the banks did not have beneficial ownership in the dividends due to certain derivative arrangements the two banks had entered into (total return swaps and futures on the SMI index, respectively). Firstly, the court held that treaty relief was reserved to the beneficial owners of dividends in spite of the fact that the applicable treaty provision predated the introduction of the beneficial ownership test in Article 10(2) of the OECD Model (1977) and thus did not expressly predicate relief on beneficial ownership in the dividends. Adopting a “substance-over-form” approach, the court found, secondly, that the derivative arrangements deprived the banks of beneficial ownership in the dividends as they imposed on the banks a “de facto” obligation to pass on the dividends to the counterparties under the derivative agreements.

These two precedents have since served as guidance to tax authorities and the courts in dealing with numerous other claims for treaty relief: As of the time of the two decisions (...