In Switzerland, taxes are levied at three levels – federal, cantonal and municipal. In addition, the cantons have a high degree of autonomy in tax matters, which results in different handling of tax disputes, even between the different cantons and the Swiss Federal Tax Administration (SFTA).

Tax controversies can arise from a variety of sources, including tax audits, tax assessments, tax self-assessments or reassessments, withholding of tax, and other administrative decisions.

The most common types of tax disputes in Switzerland are tax assessments, where the tax authorities review and issue assessments based on their findings, which may differ from the tax return (mostly self-assessment), or tax audits. In cases where the tax authorities identify discrepancies or errors in a taxpayer’s tax returns, this may lead to disputes over the amount of tax owed.

Tax controversies can arise from any type of tax matter. The tax amount at stake fluctuates considerably and is highly dependent on individual cases.

According to SFTA statistics, tax disputes in the area of corporate and individual income tax generated more than CHF400 million in additional federal tax revenue in 2022 (CHF500 million in 2022). As can be seen, the number of new and completed criminal cases varies considerably from year to year.

On the other hand, in 2023, VAT audits conducted by the SFTA increased VAT revenues by CHF172 million. Revenue from withholding tax and stamp duty inspections amounted to about CHF244 million, plus just over CHF600 million in fines.

Co-operation between the authorities on the one hand and tax advisers or taxpayers on the other works well in Switzerland. For instance, before an assessment takes place, the tax authorities are quite open to discussions with taxpayers, which helps to avoid disputes at an early stage.

In addition, the Swiss tax authorities provide taxpayers with clear guidelines and safe harbour rules, which helps to ensure that taxpayers are aware of their obligations and can comply with the rules.

One of the most important ways of avoiding tax disputes is, however, through tax rulings. A tax ruling is a binding confirmation from the competent tax authority – at the taxpayer’s request – that the tax consequences expected by the taxpayer regarding a specific issue or transaction are correct. This provides certainty and clarity to the taxpayer before the transaction takes place.

Furthermore, Switzerland has signed more than 100 double taxation treaties (DTTs) to prevent double taxation and ensure co-operation between tax authorities, which helps to reduce the likelihood of disputes between taxpayers and tax authorities in different countries. If the taxpayer and the tax authorities in cross-border disputes cannot reach a common solution, a dispute resolution mechanism is available.

Switzerland has taken steps to implement the OECD’s BEPS recommendations. The BEPS project aims to combat tax avoidance by multinational enterprises (MNEs) through measures such as country-by-country reporting or transfer pricing rules, etc.

Switzerland has implemented many of the proposed recommendations, including country-by-country reporting requirements and new transfer pricing rules. Furthermore, Switzerland has amended its double tax treaties and domestic legislation in response to the BEPS recommendations and EU measures.

In response to increased scrutiny from the EU and other international bodies in recent years, Switzerland has taken these measures, due to concerns about tax avoidance and tax evasion. However, the measures taken to implement the BEPS recommendations have also led to some controversy and negotiations between Switzerland and other countries or international bodies, and it remains to be seen how effective they will be in the long term.

Currently, the tax administrations – at cantonal and federal level – seem to focus their attention and scrutiny on offshore structures. As can be seen in practice and recent case law, the tax administration tries – in many cases successfully – to tackle such structures by questioning the place of effective management and/or by applying transfer pricing rules.

In Switzerland, taxpayers are generally required to pay any additional tax, be it for direct or indirect taxes or assessments issued by the tax authorities, even if they choose to contest the assessment. This means that the obligation to pay the assessed tax is not suspended or waived by lodging an administrative or judicial claim. However, in general, the tax owed cannot be enforced until the tax is determined and legally binding. Late payment interest should be taken into account. Nevertheless, by paying the tax (with reservations), negative interest consequences can be avoided.

A formal complaint can be lodged regardless of payment.

In Switzerland, tax audits are carried out by the Swiss Federal Tax Administration and the cantonal tax authorities. The main purpose of a tax audit is to ensure that taxpayers are complying with their tax obligations and to detect any tax evasion. It is important to note that the criteria for determining a tax audit may vary depending on the canton and the specific tax authority involved. However, some of the main factors that may trigger a tax audit in Switzerland are high-risk companies, companies that have not been audited for a longer period, and also random selection. Subsequent audits are usually carried out on the basis of certain criteria, such as the size of the company or the type of business.

Duration

The tax authorities in Switzerland may initiate a tax audit at any time and, apart from the general rules on statutes of limitation, there is no specific time limit within which they must do so (however, statutes of limitations have to be observed). The length of a tax audit varies – depending on the complexity of the taxpayer’s affairs – between a couple of days to even years, if the result of the audit is challenged in front of the courts. Except for VAT audits, there is also no specific time limit within which it must be completed.

Statute of Limitations Rules

Switzerland has statute of limitations rules that limit the period during which the tax authorities can assess and collect taxes. The statute of limitations for corporate and income taxes is generally up to 15 years from the end of the relevant tax period. For cantonal taxes, the statute of limitations may vary, typically ranging between five and ten years. For withholding tax and stamp duty, the statute of limitations is five years from the end of the relevant tax period. For VAT, the absolute limitation period is ten years. However, the five-year limitation period for withholding tax is not absolute and can theoretically be extended for as long as required if a corresponding interruption is performed. However, a limitation period of seven years must be observed in the case of criminal offences regarding withholding tax.

Although statutes of limitations do not prevent a tax audit from being initiated, they do restrict the period during which the tax authorities can make assessments and collect taxes. Once the limitation period has expired, the tax authorities can no longer assess or collect taxes for that period.

In Switzerland, tax audits can take place either at the tax authority’s headquarters or on the taxpayer’s premises. The choice of location depends on various factors, such as the size and complexity of the taxpayer’s affairs, the amount of information to be reviewed, and the preferences of the taxpayer and the tax authorities.

During a tax audit, tax authorities typically review various types of documents and data to assess the accuracy of the taxpayer’s tax returns. This can include documents such as accounting records, financial statements and invoices, as well as electronic data such as emails and computer files. Taxpayers are by law required to co-operate with the tax authorities and provide access to any relevant documents and data upon request.

In some cases, taxpayers may also be required to provide additional information or explanations to support their tax returns. This can include answering questions about their business activities, providing details about specific transactions, or clarifying any discrepancies found during the audit.

During a tax audit, the tax authorities have a wide range of interests. With regard to corporate income tax, one of the most important aspects for tax auditors is the compliance of the company’s accounts with both accounting and tax regulations. Tax auditors also examine substantive issues relating to the taxpayer’s income, expenses and deductions. This includes assessing whether the taxpayer has correctly calculated its taxable income, whether it has claimed all allowable deductions and credits, and whether it has properly reported any capital gains or losses.

Overall, tax auditors in Switzerland are primarily concerned with ensuring that taxpayers comply with all legal requirements and that their tax returns are accurate and complete.

Switzerland has experienced an increase in the number of tax audits due to the increasing prevalence of rules on cross-border exchange of information and mutual assistance between tax authorities.

Switzerland has signed several international agreements, including the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which facilitates the exchange of information between tax authorities.

This has led to an increase in the number of tax audits in Switzerland, as the tax authorities are now better equipped to identify potential cases of tax evasion and non-compliance.

The key points to consider from a strategic perspective during a tax audit in Switzerland are the following.

• Preparation – prior to the audit, it is important to review and organise all relevant documents and records. Obviously, in view of a possible tax audit, this should be a recurring task.
• Scope – understanding the scope of the audit and the issues on which the tax authorities will focus, will help to identify potential areas of concern and ensure that all relevant information is provided.
• Co-operation – full co-operation with the tax authorities and providing all the requested information in a timely and complete manner can help to build trust and credibility with the tax authorities and may lead to a more favourable outcome.
• Communication – maintain open and transparent communication with the tax authorities throughout the audit process.
• Review – carefully review the results of the audit and seek professional advice if necessary, to help identify potential problems or areas of concern and ensure that any necessary corrective action is taken.

In addition, the administrative procedure should be used to gather and produce all the documentary evidence that might be needed in the judicial tax proceedings, should they be initiated by the taxpayer. This is due to the fact that the timeframe to lodge appeals is limited (see 4.1 Initiation of Judicial Tax Litigation).

The administrative tax procedure in Switzerland typically starts with the tax authorities informing the taxpayer of their decision to perform an additional tax assessment. Within 30 days of receiving this notice, the taxpayer has the possibility to file a formal complaint with the tax authorities. The competent tax authority is required to re-examine and, if necessary, modify the initial decision partially or in full, or reject the complaint entirely. It should be noted that the same tax commissioners may be involved in the subsequent re-examination of the case, or a different department may handle it. In some cantons the taxpayer will be notified by the tax administration if the administration intends to deviate from the tax return. In these cases, the taxpayer may submit a statement before the final decision is taken.

If the taxpayer does not agree with the outcome of the re-examination, an appeal to the court can be lodged.

In Switzerland, there is no fixed time limit for tax authorities to respond to an administrative claim lodged by a taxpayer. However, the tax authorities generally respond within a reasonable timeframe. If the tax authorities do not respond within a reasonable timeframe, the taxpayer can lodge a hierarchical appeal or a judicial claim.

Once a tax administration has decided on an administrative claim and the taxpayer has been notified of the final decision, the taxpayer may initiate judicial tax litigation by lodging an appeal.

If the cantonal tax administration is competent for the administrative claim, the appeal must be lodged with the cantonal court of first instance. In matters falling under the authority of the SFTA, the appeal must be lodged with the Swiss Federal Administrative Court.

In both cases, the time limit for lodging an appeal is 30 days as from the day of notification of the contested decision. The appeal must be filed in writing and it must contain a request as to how the appealed decision should be changed, as well as a statement of reasons.

Once an appeal has been lodged at the competent court, the court will generally request an advance payment for the presumed costs of the proceedings. Upon receipt of the payment, the court will forward the appeal to the competent tax administration for its opinion and a request for the file. The taxpayer can then file a response to the tax administration’s opinion. This is an unconditional right of the taxpayer – ie, the taxpayer may file an answer even if the court has not requested it.

Since the Swiss procedural rules in administrative matters provide for an essentially written procedure, in principle, no investigative acts, hearings or oral proceedings will be conducted. However, the courts – as an exception – may order oral hearings if this appears necessary to the court in question.

In general, documentary evidence must be submitted to the court at the time of lodging the appeal, which is particularly important due to the burden of proof in Swiss tax litigation (see 4.4 Burden of Proof in Judicial Tax Litigation). If for whatever reason, certain documentary evidence is not available at the time of filing the appeal, the evidence can be submitted later, if it was specified in the complaint. Witness hearings and on-site inspections are possible, but very rare in practice.

Producing evidence during the early stages of proceedings is generally more efficient and strategically more effective, although it is still possible to produce new documents, evidence or even expert reports during judicial proceedings (except before the Federal Supreme Court).

As a general rule in tax law, the tax authority has to prove facts that constitute a tax liability or increase a tax burden. The taxpayer, on the other hand, must prove facts that eliminate a tax liability or reduce a tax burden.

If the tax authority has sufficient circumstantial evidence to reasonably believe that a certain taxable event has occurred, the taxpayer bears the burden of providing evidence to show the opposite.

In general, the legal arguments and documentary evidence, including expert opinions supporting that position, should already be prepared so as to be comprehensive and complete during the administrative proceedings. Based on this, it is important to analyse the final decision of the tax administration and, if necessary, for the taxpayer to adjust its own legal reasoning to the arguments of the tax administration. It should be noted, however, that the courts are not bound by the tax administration’s reasoning, which means that they can base their decision on new legal reasoning. Consequently, the taxpayer must also independently examine alternative approaches to the tax administration’s reasoning, and it must be assessed in each individual case whether such approaches should be proactively addressed in the appeal. It should be noted that the courts do not have to inform the taxpayer if they choose to follow a different legal reasoning in their judgment compared to the tax administration.

Once the judicial litigation proceedings have started, the tax administration will be reluctant to discuss the possibility of a settlement or amicable solution, although the tax administration can still reconsider and issue a new decision. In practice, however, the chances that the tax administration will reconsider its decision are very limited, as the tax administrations sometimes try to have their own practice confirmed by the courts.

Last but not least, timing can, in some cases, be a viable strategy. However, this strategy is more relevant in the case of indirect taxes, namely VAT, as the statute of limitations is generally shorter than in the case of direct taxes. In the case of direct taxes, however, timing can also play a relevant role in the case of back taxes.

As a civil law jurisdiction, in Switzerland the most important sources for the courts are the statutes and also local case law. The ECHR’s case law is, in particular, taken into account in criminal tax proceedings.

In addition, international guidelines are also an important source for Swiss courts. This is especially true of the OECD’s transfer pricing guidelines. However, the courts consider the guidelines in general as merely interpretational guidance and, thus, not as binding rules. Finally, of course, doctrine is also a source of interpretation.

General Remarks

As set out in 4.1 Initiation of Judicial Litigation, regarding the appeal proceedings, there is a distinction between appeals concerning tax matters for which the cantonal tax administration is the competent authority (eg, individual income and wealth, as well as corporate income and capital taxes) and for which the SFTA is the competent authority (eg, withholding tax, stamp duty and VAT).

Appeal Before a Second-Instance Court

For tax matters that fall within the competence of the cantonal tax administrations, the cantonal appeals process must be followed. First of all, the appeal against the tax administration’s decision has (in general) to be lodged with the designated tax court (court of first instance). An appeal against that court’s decision must then be directed to the cantonal (higher) administrative court (if provided by cantonal rules), where both the taxpayer and the tax administration can lodge an appeal. In both cases, the appeal period is 30 days.

The cantonal courts can review all the facts and assess the case comprehensively. This can also result in the court making a decision that puts the appellant in a worse position than if no appeal had been filed (so-called reformatio in peius).

Judgments of a second-instance court may be appealed to the Federal Supreme Court.

Appeal Before the Swiss Federal Administrative Court

The Swiss Federal Administrative Court is responsible for reviewing the legality of decisions made by federal administrative authorities in Switzerland. The lower instances are the federal departments and subordinate federal offices. The court has the jurisdiction to hear appeals against decisions made by federal authorities in various areas, including withholding tax, stamp duty and VAT.

If a party is not satisfied with the decision made by the first-instance court, an appeal to the second-instance court can be lodged within 30 days. The appeal can be lodged by either the taxpayer or the tax authority, or both, depending on the circumstances. Judgments of the Federal Administrative Court can be appealed directly to the Federal Supreme Court.

Appeal Before the Swiss Federal Supreme Court

The Federal Supreme Court is the highest judicial authority in Switzerland. It is the last instance court for appeals in tax matters. The deadline for appealing to the Federal Supreme Court is in general 30 days from the date of the lower court’s decision. Appeals regarding international exchange of information in tax matters have to be lodged within ten days. The Federal Supreme Court has the power to review legal questions and ensure the uniform application of tax law throughout Switzerland. Its decisions are in general binding on lower courts and administrative authorities. Appeals to the Federal Supreme Court are generally limited to questions of law, and the court does not review the factual findings of lower courts or administrative authorities.

In contrast to the cantonal courts, the Federal Supreme Court does not re-establish the relevant facts of the case. Rather, it is bound by the findings of facts determined by the lower courts. The Federal Supreme Court can only correct these facts if it finds that they have been established by a lower court in an obviously incorrect manner or they are based on a violation of the law. This means that the Federal Supreme Court makes its decisions exclusively by applying the law to facts that have already been established.

For initiation and procedure, see 4.1. Initiation of Judicial Tax Litigation and 4.2 Procedure of Judicial Tax Litigation. The appeals system is outlined in 5.1 System for Appealing Judicial Tax Litigation.

In Switzerland, tax cases are usually heard jointly by three judges, with one judge presiding, at all levels of court – from the first cantonal instance court to the last cantonal instance court. However, the composition of the judges in cantonal courts may differ.

Single-judge cases in tax matters are typically reserved for minor issues that do not involve complex legal or factual matters. For example, disputes related to small amounts of tax or procedural matters may be handled by a single judge. For more complex cases or those with significant financial implications, a panel of three judges is typically formed.

In the Federal Administrative Court and the Federal Supreme Court, panels of five judges may be formed in cases concerning significant legal issues or public interest.

In all the courts, clerks are involved in addition to judges. The number of clerks depends on the size of the court and can vary from case to case. However, as a rule, there is at least one court clerk who is responsible for recording the hearing and documenting the decision.

While there are no national mediation or arbitration procedures for tax disputes in Switzerland, there is an Alternative Dispute Resolution (ADR) mechanism available on an international level: The Mutual Agreement Procedure (MAP). MAP is part of most tax treaties Switzerland has concluded with other countries to avoid double taxation.

However, the two procedures operate independently of each other. This means that requesting a MAP does not suspend the deadline to file a claim against a tax assessment decision. To protect their rights under Swiss tax law, taxpayers should therefore additionally file a complaint against the tax authority where applicable.

As mentioned in 6.1 Mechanisms for Tax-Related ADR in This Jurisdiction, Switzerland does not have a national ADR mechanism. The following describes the procedure at an international level with regard to a MAP.

A MAP is generally initiated based on a request by the taxpayer in the country of residence. Certain DTTs also provide the possibility to address the MAP request in the other contracting state involved. The competent authority in Switzerland is the State Secretariat for International Finance (SIF). The request must generally be filed within three years of the first notification of the measure which could lead to double taxation.

In case of a MAP procedure, the SIF informs the Swiss tax authorities concerned. The taxpayer itself is not a party to the MAP and does not have the right to be heard nor to have access to its file in the course of the procedure. In practice, however, the SIF keeps the taxpayer informed on the status of the procedure and takes account of the taxpayer’s suggestions.

If the SIF and the foreign competent authorities reach a mutual agreement, the taxpayer usually has 30 days to agree to the proposed outcome of the mutual agreement. If the agreement is approved, it becomes binding for the taxpayer, the cantonal tax authorities and the SFTA. If no mutual agreement is reached within a reasonable period of time (usually three years), newer DTTs often contain the possibility of an arbitration procedure (to be requested by the taxpayer).

If the competent authorities reach a mutual agreement on issues that have not yet been subject to final taxation in Switzerland, the cantonal tax authority is obliged to implement the content of the mutual agreement in the tax assessments without delay, with a corresponding adjustment by correcting the taxpayer’s tax base. If the taxation is final, the SIF will issue an execution order. This ensures that the mutual agreement is implemented at national level.

Furthermore, there is no appeal against the result of a MAP or arbitration.

There are no national mediation or arbitration procedures for tax disputes.

In Switzerland, taxpayers can obtain binding advance information and rulings from the tax authorities to ensure tax certainty and prevent disputes. These rulings provide taxpayers with a binding decision from the tax authorities on the tax implications of a particular transaction or situation. To request a ruling, taxpayers must submit a written request to the relevant tax authority, including a detailed but succinct description of the relevant facts and a corresponding request regarding the fiscal assessment of the facts described. The ruling will, thus, only apply to the specified facts and taxes.

It is important to note that the tax authorities in Switzerland are not obliged to issue a ruling and will only do so if the request concerns a legal question that is not yet settled or if the case involves complex or unusual circumstances. Furthermore, there is no legal entitlement for taxpayers to receive a binding ruling, and if a request is denied, taxpayers cannot contest the decision. In this case, taxpayers must assess whether they want to implement the planned action or transaction and thus take the chance of having to enter tax proceedings or whether they want to forego implementation.

There is no domestic ADR mechanism under Swiss tax law. For the international ADR mechanism applicable to Switzerland, refer to 6.1 Mechanisms for Tax-Related ADR in This Jurisdiction.

ADR mechanisms may be used to resolve transfer pricing disputes that could lead to double taxation (see 6.1 Mechanisms for Tax-Related ADR in This Jurisdiction).

General Remarks

In principle, it should be noted that the ordinary tax assessment procedure and – if the tax has already been assessed – the supplementary tax assessment procedure are conducted separately from any criminal proceedings, whether in temporal or organisational terms. However, administrative and criminal proceedings are sometimes intertwined, which can be problematic due to the different rights (eg, prohibition of self-incrimination according to criminal procedural law) and obligations in the different proceedings.

In addition to criminal proceedings resulting from an incomplete assessment, pure breaches of procedural duty, such as failing to file the tax return on time or at all, must also be taken into account. For such violations of procedural obligations, the tax administration may – after issuing a warning – impose a fine of up to CHF10,000.

Additional Tax Assessments – Back-Taxes Procedure

If a tax return is found to be incomplete or incorrect during the tax assessment procedure, the additional tax may be assessed without a separate procedure in the same tax assessment. However, if the tax assessment is already final, the additional tax must be assessed in a separate procedure; the so-called back-tax procedure. This procedure is of pure administrative nature and only aims at the correct taxation. In general, back-tax proceedings may only be conducted if new facts or evidence show that an assessment was erroneously not issued at all or that the final assessment is incomplete. The right to initiate back-tax proceedings expires ten years after the end of the tax period concerned.

In relation to indirect taxes, where the principle of spontaneous taxation applies, the SFTA has the authority to issue supplementary tax assessments if there is evidence of tax evasion, tax jeopardy, or failure to comply with legal obligations (eg, not submitting reports within the deadline specified by law).

Criminal Tax Evasion Procedure

As a preliminary remark, it should be noted that the Swiss Federal Supreme Court has established that a taxpayer can structure its affairs in such a way that it incurs as few taxes as possible. However, as soon as “improper means” are used, the limit of what is permissible is crossed and – in the absence of specific anti-abuse provisions – the taxpayer finds itself in a grey area.

Once the tax administration becomes aware that a final tax assessment may be incomplete, administrative and criminal proceedings are initiated and the taxpayer will be notified. If the incompleteness of the assessment is established during the ordinary assessment procedure, the correction can be made in the course of the current procedure, which means that no separate administrative procedure is required.

Tax Fraud and Embezzlement

Tax fraud and withholding tax-at-source embezzlement are the most severe tax offences concerning direct taxes. Tax fraud is committed when fraudulent documents (eg, false financial statements or salary certificates) cause a tax assessment to be incomplete and this is a qualified tax offence with a maximum penalty of imprisonment for up to three years or a fine. Embezzlement of withholding tax at source is committed when a person required to collect tax at source misappropriates the amounts collected for their own benefit or for that of a third party. Embezzlement of withholding tax at source is also a qualified tax offence with a maximum penalty of imprisonment for up to three years or a fine.

Tax Evasion

Tax evasion is an offence and occurs when the taxpayer (without using forged documents), with intent or through negligence, omits certain items in their tax return or deliberately submits an incomplete tax assessment. Tax evasion is sanctioned by imposing a fine (no imprisonment), whereas the fine is usually equal to one times the evaded tax (the statute of limitations is ten years). The fine may be reduced by up to one third in the case of a minor fault and may be increased by up to three times in the event of serious wrongdoing. Where the incompleteness of the tax return was discovered prior to the final assessment (attempted tax evasion), the fine will be reduced by two thirds (the statute of limitations is six years).

Withholding Tax and Stamp Duty Offences

For withholding tax and stamp duty purposes, in general, fines can be imposed up to a maximum of CHF30,000. However, the maximum fine can be increased to up to three times the amount of evaded tax if that amount is higher than the mentioned threshold of CHF30,000. With regards to VAT, tax evasion can lead to a maximum fine of up to CHF800,000, which can be increased to twice the amount of evaded tax. In the event of aggravating circumstances, the maximum amount of the threatened fine may be increased by half along with a prison sentence of up to two years.

Tax Misdemeanours

In the case of tax misdemeanours (eg, violation of procedural obligations or tax evasion) the competent cantonal or federal tax administration is the same as for the back-taxes procedure (if such procedure is required) and for the criminal procedure. This accumulation of competence can be problematic in view of the protection of constitutional rights. For instance, in criminal proceedings, the taxpayer has the right to remain silent (eg, prohibition of self-incrimination), whereas in the administrative back-taxes proceedings, the taxpayer is obliged to co-operate. In addition, the principle of in dubio pro reo applies in criminal proceedings – in contrast to administrative proceedings – which means that different rules of evidence apply. In light of this, whenever possible, criminal proceedings should (upon request) be conducted first, before the administrative back-tax proceedings can be processed. In practice, however, these proceedings are often conducted simultaneously.

Tax Offences

For tax offences (eg, tax fraud and embezzlement of withholding tax at source) the public prosecutor is competent. If the competent tax administration is of the opinion that the taxpayer committed a tax offence, a charge is filed with the public prosecutor’s office, which is then responsible for further proceedings, which are governed by the Code of Criminal Procedure. The public prosecutor’s office will then – using coercive measures, if necessary – investigate the relevant facts and depending on the findings, close the case, issue a penalty order or refer the case to the court for judgment. Due to the fact that the public prosecutor’s proceedings are governed by the Swiss Code of Criminal Procedure, the procedure is generally more elaborate than the tax (evasion) procedure and leaves more room for investigative and even coercive acts.

The tax authorities generally initiate administrative and criminal proceedings if they have reason to believe that a tax return or a final assessment is incomplete or that self-reporting obligations are incomplete or missing (under the spontaneous declaration procedure). As mentioned (see 7.1 Interaction of Tax Assessments With Tax Infringements), a back-tax procedure generally entails a tax-evasion procedure, which is of a criminal nature.

Back Taxes

The administrative procedure to determine back-taxes follows the same procedural principles as the ordinary tax assessment procedure. Once the additional administrative procedure has been opened, the tax administration will present its findings proving the incompleteness of the tax assessment to the taxpayer and give the taxpayer the opportunity to comment on them. If the taxpayer cannot refute the allegations raised, the tax administration will issue an additional tax assessment.

Tax Misdemeanours

The procedure concerning tax misdemeanours varies from canton to canton. In general, however, the procedure is kept very simple. As in the additional administrative procedure, the taxpayer will have the opportunity to comment on the allegations before the administration renders a decision. In some cantons, the tax administration has an obligation to hear the taxpayer in person.

Tax Offences

Tax offences are not prosecuted by the tax administration but rather by the public prosecutor’s office. This procedure is governed by the Code of Criminal Procedure and is, hence, more regulated than the procedure regarding tax misdemeanours. The public prosecutor’s competence is limited to the criminal side of the case; thus, the back-taxes procedure will still be dealt with by the tax authority or the relevant administrative court.

Co-operation

The tax amount unlawfully evaded must, in any case, be paid in full. The fine itself is generally equal to the evaded tax, but can be reduced through co-operation by up to one third of the tax amount. In practice, however, the effects of co-operation are rather limited (see 7.1 Interaction of Tax Assessments With Tax Infringements).

Voluntary Disclosure Procedure

In order to avoid fines altogether, the taxpayer can voluntarily disclose a committed tax evasion or a tax fraud to the tax administration within the framework of a voluntary disclosure procedure. This possibility exists only once in a lifetime and the notification must be made spontaneously. If the taxpayer assists in the determination of the tax owed and also pays the tax, no fine will be imposed. However, if the tax authorities already suspect an offence, the right to a voluntary disclosure without penalty is forfeited.

With the exception of voluntary disclosure (see 7.5 Possibility of Fine Reductions), it is generally not possible to avoid criminal proceedings by paying the evaded tax. However, in certain cases it might be possible to reach an amicable solution with the tax administration, whereby the tax administration waives the criminal prosecution and the taxpayer in return accepts the additional tax without appealing to the courts. However, this is limited to cases in which the facts or the legal situation are not absolutely clear.

Tax offences are exclusively handled by the criminal courts. The public prosecutor is responsible for prosecuting tax offences, and simply paying the tax owed does not prevent the procedure from continuing. Upon request, an accelerated procedure – and to avoid court proceedings – may be available before the public prosecutor provided the accused admits the matters essential to the legal appraisal of the case and recognises, if only in principle, the civil claims. However, the accelerated procedure is not eligible in cases where the public prosecutor requests a custodial sentence of more than five years. If an accelerated procedure is conducted, the public prosecutor will prepare an indictment, which the taxpayer may either accept or reject.

For tax misdemeanours, the possibility of appeal is the same as outlined in 7.4 Stages of Administrative Processes and Criminal Cases.

For tax offences, an appeal to the second-instance court and then to the Swiss Federal Supreme Court is possible, if specific deadlines are observed.

In recent years, tax administrations in Switzerland have increased their scrutiny of transfer pricing. In principle, if the tax administration increases the transfer prices and adjusts them to the taxpayer’s disadvantage, this constitutes tax evasion.

However, as is well known, transfer prices are considered appropriate if they lie within a certain range, which means that there is no one exact transfer price. Since there is a certain discretion in setting transfer prices, transfer pricing adjustment by the tax administration, in general, does not lead to criminal consequences. Nevertheless, in cases where the basic principles of transfer pricing have been grossly neglected and, thus, violation of the arm’s length principle was not only recognisable to the company or the persons in charge respectively, but downright obvious, criminal penalties may be imposed.

In Switzerland, taxpayers can use both domestic litigation and the mechanism available under double tax treaties to resolve double taxation that arises from additional tax assessments or adjustments in cross-border situations. The available mechanism to resolve such tax disputes under double tax treaties is MAP or arbitration (if provided for in the tax treaty).

The MLI

In this context, Switzerland has signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), which includes provisions for dispute resolution to avoid double taxation through a MAP and mandatory binding arbitration. The adoption of these new dispute resolution mechanisms will require amendments to be made to existing double tax treaties. Switzerland follows the amending view, which means that changes to the interpretation of tax treaties must be incorporated through treaty amendments, following internal procedures.

Currently, Switzerland is still in the process of adapting its double tax agreements to include the provisions for MAPs and arbitration under the MLI. The impact of the introduction of the arbitration clauses to resolve cross-border tax disputes in Switzerland is not yet apparent.

At the international level, Switzerland has incorporated anti-avoidance provisions, such as the Principal Purpose Test, in its recent double tax treaties. However, there is no specific legislation or regulations at the national level on anti-avoidance rules. Instead, the Swiss Federal Supreme Court has established general anti-avoidance rules which apply to all Swiss taxes. This general principle also applies to Swiss double tax treaties, in the absence of other specific anti-avoidance provisions in such treaties. It should be noted, however, that if a MAP application is found to violate national or treaty anti-abuse provisions, such as the taxpayer’s lack of good faith, the SFTA and the foreign tax authorities may consider such a MAP application as abusive and may not seek a mutual agreement.

In Switzerland, transfer pricing adjustments are typically challenged under the existing double tax treaties mechanism, specifically through the MAP or arbitration provisions in the relevant tax treaty.

Nevertheless, the first step is always to appeal to the national courts. In this context, it is worth mentioning that Switzerland does not have any specific transfer pricing provisions, but still applies the OECD Guideline.

An advance pricing agreement (APA) aims to align taxation for future years. In Switzerland, APAs are considered to be a specific type of MAP that generally follow the same rules as a MAP but might differ in some aspects of the procedure.

An APA can be concluded unilaterally (between a taxpayer and the competent Swiss tax authority), bilaterally or multilaterally. It is to be noted that unilateral APAs are subject to the spontaneous exchange of information to the same extent as a transfer pricing ruling with cross-border implications concluded with the SFTA.

It has been observed that tax disputes in cross-border situations have increased. In Switzerland, transfer pricing disputes have emerged as one of the most common cross-border situations that result in litigation. Similarly, the issue of withholding tax in cross-border transactions can also lead to disputes, particularly due to the high withholding tax rate of 35% and varying tax administration practices. Furthermore, the determination of tax residency for high net worth individuals and companies can also result in cross-border-related disputes, particularly if there are disagreements over whether a taxpayer is a tax resident in Switzerland or another country.

As Switzerland is not an EU member, this issue does not arise.

As Switzerland is not an EU member, this issue does not arise.

As Switzerland is not an EU member, this issue does not arise.

As Switzerland is not an EU member, this issue does not arise.

In June 2017, Switzerland signed the MLI and subsequently ratified it in September 2019. Switzerland has initiated the process of incorporating arbitration clauses into its existing DTTs, although a significant number of its DTTs are still without such clauses.

Switzerland’s arbitration clause in its DTTs differs from the OECD Model Tax Convention on Income and on Capital in two ways: it has a three-year waiting period instead of two, and it allows for arbitration even if a court or administrative tribunal has already made a decision on the matter.

Switzerland has opted for final offer arbitration in the arbitration clauses in its tax treaties. Under this method, also known as “baseball arbitration”, the competent authority of each state involved submits a proposal to the arbitration panel. The panel must then choose between the two proposals.

Switzerland is not a member of the European Union, but it has followed the current trends in international arbitration proposed by the OECD, of which it is a founding member.

The impact can be seen in the fact that Switzerland has signed the MLI and is including arbitration clauses in its DTTs (see 8.1 Mechanisms to Deal With Double Taxation).

As already mentioned, Switzerland is not a member of the EU, but it follows international developments. Thus, as mentioned, the MLI has been signed and the minimum standard is being implemented.

Pillar Two is aimed at establishing a global minimum tax rate of 15% for multinational companies with a turnover of at least EUR750 million. Switzerland has expressed its support for this initiative.

On 18 June 2023, the Swiss electorate voted on the implementation of the OECD/G20 minimum taxation (and the creation of the constitutional basis for the introduction of Pillar One), with the proposal being approved by 78.5%. The referendum was necessary as the introduction of the OECD/G20 minimum taxation required an amendment to the Federal Constitution. This was because the OECD/G20 minimum taxation would have contradicted the constitutional principle of equal treatment of taxpayers. With the approval of the constitutional amendment, which came into force on 1 January 2024, the Federal Council enacted the ordinance on minimum taxation at federal level on the same day. At the same time, some cantons also decided to increase tax rates for companies.

It is to be noted, though, that the minimum taxation in Switzerland is currently limited to the national supplementary tax (Qualified Domestic Minimum Top-up Tax, QDMTT). The Federal Council has refrained from applying the international supplementary tax rules (Income Inclusion Rule, IIR and Undertaxed Profit Rule, UTPR), which are provided for in the ordinance, for the time being. The partial introduction of the minimum taxation results in a tax increase for Swiss corporate groups and in particular US corporate groups with directly held Swiss constituent entities, provided the GloBE ETR in Switzerland is below 15% (and no corresponding substance-based income exclusion applies).

In Switzerland, decisions related to the resolution of international tax disputes are not made public by the competent authorities.

DTTs play a significant role in promoting international economic activities by preventing the double taxation of private individuals and legal entities with an international connection in the area of taxes on income and capital. Switzerland has an extensive network of DTTs with more than 100 countries and is striving to expand it further. In addition, Switzerland has currently entered into eight agreements to avoid double taxation with regard to inheritance and estate taxes. Hence, the competent Swiss authorities rely mainly on this network of agreements to resolve international tax disputes.

As mentioned in 6.2 Settlement of Tax Disputes by Means of ADR, the taxpayer is not a party to a MAP and therefore the tax representatives are not involved in the proceedings. However, the tax administration is willing to co-ordinate with a tax representative to accept material inputs that can be used in the negotiations.

No fees, etc, are charged for litigation at the administrative level.

However, even if a formal administrative complaint is lodged with the tax administration, the disputed taxes are still due. Hence, up until payment of the disputed taxes, late interest of up to 5% will accrue. Therefore, the taxpayer should always consider paying the disputed tax – with reservations – in order to avoid being charged late interest.

Cantonal court fees vary from instance and canton. In 2021, for example, according to the first-instance tax court of the Canton of Zurich, the judicial court fees amounted on average to CHF4,000. By comparison, the average court fees of the administrative court of the Canton of Zurich amounted to CHF7,000. However, it should be noted that the court fees are calculated based on the amount of disputed tax and the complexity of the case. Individual fees may therefore differ substantially, but they may only exceed CHF50,000 in particularly complex cases.

As at the cantonal level, before the Federal Administrative Court and the Federal Supreme Court, the fees are calculated based on the challenged amount, the scale and complexity of the case, the parties involved in the procedure and their financial situation. The fee cannot exceed CHF100,000.

In general, the court fees are borne by the unsuccessful party. If the taxpayer succeeds, the tax administration will be obliged to reimburse part of the legal costs incurred for representing the taxpayer (see 11.3 Indemnities).

With regard to the court fees, the courts usually request an advance payment. If the requested advance payment is not paid in time, the courts will not proceed with the appeal and will close the case.

If the court decides that the initial tax assessment is absolutely null and void, no compensation will be paid. The taxpayer can, however, claim a partial reimbursement of the costs incurred for legal representation. It should be noted that standard hourly rates are applied and that the amount of time deemed reasonable by the court is often less than the actual time incurred. Hence, the compensation for representation costs usually does not cover the actual costs.

Of course, any amount already paid by the taxpayer will have to be reimbursed with potential interest in the taxpayer’s favour.

The MAP, including the arbitration procedure, is free of charge. However, the taxpayer bears the fees for any legal advice and there will be no reimbursement if a settlement can be reached.

The first-instance tax court of the Canton of Zurich registered 526 new cases for 2022 and, thus, less than the expected 600 cases (latest data available). Considering the cases already pending (on average, just over350 cases), the court was able to settle 521 cases (567 in 2021). On average, the duration of the proceedings is around eight months.

The Administrative Court of the Canton of Zurich, as the second cantonal instance, registered around 980 new cases in 2022 (latest data available), with tax disputes accounting for 159 cases. Of the total pending tax proceedings of 228 cases, 177 cases were closed in 2022.

The latest report available from the Federal Administrative Court indicates that, during 2023, this court processed 72 cases in tax matters (excluding cases concerning exchange of information). The Federal Supreme Court processed 275 cases in the same period. With regard to the pending cases for the different tax types, no data is available, neither for the Federal Administrative Court nor for the Federal Supreme Court.

Additional statistics on values dealt with are not available for either the cantonal or federal courts.

First-Instance Tax Court of the Canton of Zurich

For the year 2022, the first-instance tax court of the Canton of Zurich reported 526 new cases, of which around 440 (85%) relate to income and wealth tax for individuals as well as corporate income and capital tax. The administrative court of the Canton of Zurich does not provide any details on the different taxes concerned – however, it appears reasonable to assume that the ratio of the taxes concerned is similar to that of the first instance court.

Federal Administrative Court

In 2023, the Federal Administrative Court processed 13 cases for subsidies (compared to 14 cases in 2022), 45 cases for customs (compared to 62 in 2022), four case for stamp duties (one in 2022), three cases for direct taxes (six in 2022), 47 for VAT (66 in 2022), six for various indirect taxes (11 in 2022), 16 for withholding tax (11 in 2022), none for double taxation (none in 2022) and two for miscellaneous finance (three in 2022). The total value at stake of these proceedings is not available.

With regard to the newly initiated cases for the different tax types, there is no data available for the Federal Administrative Court.

Federal Supreme Court

In 2023, the Federal Supreme Court processed 224 cases for direct taxes (216 cases in 2022), one for stamp duties (none in 2022), 17 for indirect taxes (28 in 2022), five for withholding tax (seven in 2022), three for military service exemption tax (two in 2022), five for double taxation (five in 2022), 51 for other levies (35 in 2022), 16 for customs (eight in 2022) and nine for tax exemption (two in 2022).

With regard to the newly initiated cases for the different tax types, there is no data available for the Federal Supreme Court.

According to the statistics of the first instance tax court of the Canton of Zurich, the success rate from the taxpayer’s point of view is around 28%. In cases before the administrative court of the Canton of Zurich, this success rate drops to around 16%.

The statistical data provided by the Federal Administrative Court and the Federal Supreme Court in their annual reports does not include any information on the outcome of tax-related proceedings. However, according to a private study and on the basis of Federal Supreme Court data for the past ten years, the success rate – again from the taxpayer’s point of view – is only 14%.

This data underlines the importance of the administrative procedure and confirms that, whenever possible, an attempt should be made to resolve the disputed matter with the tax administration.

In Switzerland, there are comparatively few tax litigations (see 12.1 Pending Tax Court Cases and 12.2 Cases Relating to Different Taxes). One possible explanation for this is the common use of tax rulings (see 1.3 Avoidance of Tax Controversies and 6.4 Avoiding Disputes by Means of Binding Advance Information and Ruling Requests). Tax rulings provide taxpayers with a binding decision from the tax authorities on the tax implications of a particular transaction or situation.

If there is still disagreement between the taxpayer and the tax authority, the tax authority is, in complex cases, usually open to discuss an amicable solution. The administrative procedure allows the parties to discuss the facts and try to reach an agreement.

Nevertheless, careful advance planning is essential to avoid unexpected surprises. Particularly in the case of complex issues, it is necessary to analyse the situation in advance and, if necessary, enter into dialogue with the tax authorities at an early stage to seek a tax ruling in order to create legal certainty and avoid unexpected conflict.