Withholding tax liability for permanent establishments Sample Clauses

Withholding tax liability for permanent establishments. In addition to the location of “manage- ment in Switzerland”, “operating activi- ties in Switzerland” also represent a pre- requisite for “residency” for the purpose of establishing liability for payment of withholding tax. According to prevailing opinion, this means active involvement in the Swiss market that results in a flow of revenue from Swiss sources. In recent years, the term “residency” for the determination of withholding tax liability has essentially become synonymous with the term as used for taxes on income. Since a permanent establishment located in Switzerland qualifies as a non-resident entity, it is exempt from payment of with- holding tax. However, if the headquarter location in another country is nothing more than a “phantom company”, this company may qualify as a resident entity, in which case the income of the perma- nent establishment in Switzerland and dividends paid by the parent location to its shareholders would then be subject to pay- ment of withholding tax. A phantom company will in practice be allowed to recover withholding tax only if it qualifies as a “resident entity” and is fully liable for income and capital tax. Even then, there is no guarantee that the tax will be refunded since the right to reimburse- ment presupposes payment of the stamp duty. But since a permanent establishment is not subject to payment of the stamp duty, there could be some question as to whether the refund is justified.