In this case, the Swiss tax authorities had refused to refund A SA withholding tax on an amount of the so-called distributable reserves. The refund was denied based on the Swiss “Old Reserves-doctrin”. “…the doctrine relates the existence of the practice of the Federal Tax Administration of 15 November 1990, known as the “purchase of a full wallet” (“Kauf eines vollen Portemonnaies” or the “old reserves” practice… According to this practice, “tax avoidance is deemed to have occurred when a holding company based in Switzerland buys all the shares of a company based in Switzerland with substantial reserves from persons domiciled (or having their seat) abroad at a price higher than their nominal value, …” The doctrin is applied by the tax authorities based on a schematic asset/liability test: if there are distributable reserves/retained earnings prior to the transfer of shares from a jurisdiction with a higher residual withholding tax to a jurisdiction with a lower one, the previous higher rate still applies on these reserves/retained earnings. Judgement of the Swiss Supreme Court The court ruled in favor of A SA and set aside the decision of the tax authorities. According to the court, the “Old Reserves-doctrin” only applies to cases of actual tax avoidance. According to previous case law, there is tax avoidance: when the legal form chosen by the taxpayer appears to be unusual, inappropriate or strange, and in any case unsuited to the economic objective pursued, when it must be accepted that this choice was abused solely with the aim of saving taxes that would be due if the legal relationships were suitably arranged, when the procedure chosen would in fact lead to a significant tax saving insofar as it would be accepted by the tax authorities. In this regard, the burden of proof is on the tax authorities. Click here for English translation Click here for other translation ...