Tax Treaty Case Law around the Globe 2012

Switzerland: Tax Treaty Residence and Tax Liability

5.1. Introduction

A company (Company X or the Company) with a domicile in the free trade zone of Madeira (Portugal) appealed against a decision of the Swiss Federal Tax Administration (SFTA) rejecting the Company’s request, claimed on the basis of the Switzerland-Portugal income tax treaty, of a refund of the withholding tax withheld by its affiliated Swiss resident company (the Swiss company) on a dividend distribution. The SFTA concluded that because Company X was domiciled in the free trade zone of Madeira – where it was subject only to lump-sum taxation and did not pay any income tax – it did not qualify as a resident under article 4(1) of the Switzerland-Portugal treaty. The Swiss Federal Administrative Court (the Court) therefore had to determine whether Company X was considered a “resident” under the applicable Switzerland-Portugal treaty.

5.2. Facts of the case

Company X was incorporated in the free trade zone of Madeira in order to be active exclusively in that zone. Company X was a shareholder of the Swiss company. It filed a refund request for the 35% tax at source withheld by the Swiss company on a dividend distribution ma...