Swiss Federal Supreme Court, 28.05.2026, 9C_326/2025
Facts
A taxpayer (A.), a managing partner of a limited liability company (Sàrl), received a current account loan from his company through his sole proprietorship. In 2017, the Valais Cantonal Tax Administration determined that this loan did not meet market conditions (the arm's length principle). It set a ceiling on the loan amount (CHF 297,174) and explicitly warned the taxpayer that any further increase or failure to repay would be reclassified as a constructive dividend and taxed accordingly. (Facts A.a, A.b)
Despite these warnings, the loan balance continued to rise. Consequently, the Cantonal Tax Administration added CHF 72,000 to the taxpayer's taxable income for 2017 and CHF 132,000 for 2018, classifying these amounts as taxable benefits in kind. The taxpayer did not report these amounts in his respective tax returns and did not contest the revised tax assessments. (Facts A.c, A.d)
In 2021, the company filed a late declaration of these benefits with the Federal Tax Administration (FTA). As the simplified reporting procedure was denied, the company was required to pay 35% withholding tax, totaling CHF 71,400. The taxpayer subsequently requested a refund, which the Valais tax authorities denied on the grounds that he had forfeited his right to it. The Valais Cantonal Court upheld this decision, ruling that the failure to declare the income was not due to simple negligence, but was an intentional act. The taxpayer then appealed to the Federal Supreme Court. (Facts A.e, A.f, B, C)
Legal Analysis
The dispute concerns the forfeiture of the right to a withholding tax refund, as governed byArticle 23 of the Withholding Tax Act (WTA). According to paragraph 1, a taxpayer who fails to declare income subject to withholding tax forfeits their right to a refund. (Consideration 4)
Article 23, paragraph 2 of the WTA provides an exception: there is no forfeiture if the omission is due to simple negligence and the income is subsequently declared or added by the tax authority in proceedings that have not yet become final. The version of Article 23 WTA in effect since January 1, 2019, which is more lenient, applies to this case under the transitional provisions. (Consideration 4)
Case law distinguishes between intent and negligence. Conduct is considered intentional (including by conditional intent) when it is established that the taxpayer was aware that their declaration was incomplete and acted in this manner to obtain a more favorable tax assessment.
Negligence, by contrast, is a culpable lack of foresight where the taxpayer does not realize the consequences of their actions. Determining internal facts (what the taxpayer knew or intended) is a matter of fact-finding and is binding on the Federal Supreme Court, unless it is arbitrary. Conversely, the legal definition of intent and negligence is a question of law that is subject to full judicial review. (Consideration 4.2)
Application to the Case
The Federal Supreme Court first clarifies that the scope of the dispute is limited to the question of the forfeiture of the right to a refund. The existence of the taxable benefits in kind (CHF 72,000 and CHF 132,000) is not contested at this stage of the proceedings and is therefore not examined. (Consideration 3, 3.1, 3.2)
The Federal Supreme Court upholds the analysis of the lower court: the appellant's failure to declare this income does not constitute simple negligence. The Cantonal Tax Administration had clearly and repeatedly warned him, starting in August 2017, that any increase in the loan beyond the set ceiling would be considered taxable income for him. As the managing partner and beneficiary of the loan, the appellant could not have been unaware of either the increase in debt or the tax consequences that had been explicitly communicated to him even before he filed his tax returns for 2017 and 2018. (Consideration 4.3, 4.4.3)
The appellant's arguments, such as the inability to adhere to the repayment plan or the claim that he did not realize the consequences, are deemed insufficient to challenge the assessment of the cantonal judges. By being aware of the tax authorities' warnings and deliberately failing to declare the corresponding amounts, the appellant acted intentionally, at the very least with conditional intent, for the purpose of obtaining a more favorable tax assessment. (Consideration 4.4.2)
Consequently, the condition of negligence required by Article 23, paragraph 2 of the WTA is not met. The Cantonal Court therefore correctly concluded that the appellant had forfeited his right to the CHF 71,400 withholding tax refund. (Consideration 4.5)
Outcome
The Federal Supreme Court dismisses the appeal to the extent that it is admissible. The court costs, set at CHF 2,500, are to be borne by the appellant. (recital 1, 5)
Silex tax newsletter published in collaboration with Anna Vladau, Attorney at Law
