The Resource Re Swiss Swaps Case I/A : A-6537/2010

Re Swiss Swaps Case I/A : A-6537/2010

Re Swiss Swaps Case I/A : A-6537/2010
Re Swiss Swaps Case I/A : A-6537/2010
  • eng
  • eng
Judgment by the Federal Administrative Tribunal, decision date 7 March 2012. The complainant was a Danish bank which, during several years had entered into total return swaps (TRSs) over equities issued by Swiss companies with counterparty-companies located in France, Germany, the UK and the US. Under the swap agreements, the complainant was obliged to make a payment to the counterparty equal to the economic return on the underlying equities over the swap period: this included any movements in the market price and any dividends received on the underlying equities. As a matter of practice, the complainant hedged its obligations under the swaps by acquiring the underlying equities. The complainant acquired these equities from an international broker and not from the counter-party. In consideration for the swap, the complainant received a return of LIBOR plus a margin on a sum equivalent to a loan on the value of the underlying. The dividend article of the Denmark-Switzerland double taxation convention (prior to the protocol of 21 August 2009) provided for a zero rate of withholding tax in Switzerland. The complainant received refunds of Swiss tax withheld on dividends from Swiss companies in 2006. The Swiss Federal tax authorities (SFTA) claimed repayment of the refunds for 2006 and withholding tax for 2007 and 2008 on the basis that the complainant was not the beneficial owner of the dividends or on grounds that there had been abuse of the treaty. The complainant appealed to the Federal Administrative Tribunal. The Tribunal held (allowing the appeal) that (1) The Denmark-Switzerland convention did not employ the term 'beneficial owner'. However, had that term been present the complainant would have been the beneficial owner of the dividends as it had sufficient power to decide on the use to be made of the dividends. The issue of beneficial ownership was to be determined having regard to objective economic criteria. A person receiving a payment with a duty to pass that payment on to another was not the beneficial owner. It was relevant here that the complainant had a duty to make the swap payment regardless of whether a dividend was paid, and even if it did not receive the dividend (because it had not acquired the underlying); (2) Beneficial ownership was a condition for treaty entitlement; it was different from the concept of treaty abuse. Treaty abuse arises if the person claiming treaty benefits does not carry on genuine economic or commercial activity. Here the complainant was a substantial bank and could not be regarded as engaged in treaty abuse
Citation source
In: International tax law reports. - London. - Vol. 14 (2012),
Geographic coverage
Language note
Baker, P
  • case law
  • beneficial ownership
  • treaty interpretation
  • dividend withholding tax
  • swap
Re Swiss Swaps Case I/A : A-6537/2010

Library Locations

    • IBFD Library AmsterdamBorrow it
      Rietlandpark 301, Amsterdam, 1019 DW, NL
      52.3736660 4.9336932
Processing Feedback ...