As a preliminary remark, it should be emphasised that taxes in Switzerland are levied at three different levels: federal, cantonal and municipal. Certain taxes are only levied at the federal level (eg, withholding tax, stamp duties or VAT) while some other taxes are only levied at cantonal levels (eg, gift tax, inheritance tax or wealth tax). As cantons still have a high level of independence regarding tax matters, this can result in significant differences in the handling of tax controversies between the various cantonal and federal tax authorities.

Tax controversies usually arise by way of a formal complaint filed by the taxpayer against a tax assessment decision rendered by a tax authority. In the fields of withholding tax, stamp duty and VAT, where the principle of spontaneous taxation applies (meaning that taxpayers themselves calculate the amount of tax due, declare it and pay said amount to tax authorities), controversies usually start as a result of a tax audit conducted by the Swiss Federal Tax Administration (SFTA).

All tax matters may give rise to tax controversies, regardless of the type of tax or of the values involved.

According to the latest report of the SFTA, tax controversies related to corporate income and individual income tax matters raised, in 2021, CHF136 million of additional revenues (including back taxes and fines) at federal level. The amount of such revenue is subject to major variations as it always depends on the tax matters at hand (eg, less than CHF50 million was raised in 2018).

On the other hand, in 2019, VAT audits conducted by the SFTA increased VAT revenues by CHF142 million and withholding tax audits conducted by the SFTA raised less than CHF20 million of additional revenues (including back taxes and fines). In 2021, 840 audits were conducted by the SFTA for tax controversies related to withholding tax and stamp duties. Revenues from such audits, depending on the tax matters at hand, are also subject to major variations from one year to another.

Broadly speaking, Swiss tax authorities are quite open to discussion with taxpayers, which serves to mitigate the possibility of tax controversies further down the line. In particular, tax rulings (see 6.4 Avoiding Disputes by Means of Binding Advance Information and Ruling Requests) provide a powerful tool to ensure certainty and avoid subsequent disputes.

The latest report from the SFTA indicates that, in 2019, more than 6,000 tax rulings were handled showing the relevance of such advance discussions in Switzerland. Tax rulings filed by taxpayers each year to the various cantonal tax authorities are also of major importance and are frequently used to mitigate disputes on taxes levied at cantonal level.

In an effort to comply with the Base Erosion and Profit Shifting (BEPS) Recommendations of the OECD, as well as with the EU’s various measures to combat tax avoidance, Swiss tax authorities have taken, over the years, an increasingly strict approach in many tax matters. This has led to a growing number of tax controversies in Switzerland, with, for instance, offshore structures being increasingly challenged and transfer pricing matters being more strictly reviewed.

When faced with an additional tax assessment, the taxpayer is not obliged to pay or guarantee the tax assessed in order to be able to lodge a formal complaint, and subsequently an appeal, against it. If a taxpayer considers that an amount of tax is not due, the main recommendation is rather to avoid paying the challenged amount. In the field of spontaneous taxation, in particular VAT matters, any payment of tax is a recognition of taxes owed.

Alongside the additional tax assessment, Swiss tax authorities will typically open criminal proceedings against the taxpayer; for instance, due to the misdemeanour of not having declared a taxable event to the tax authorities.

The Swiss tax authorities do not share the criteria on which they base their decisions to perform a tax audit. The various tax authorities have a certain flexibility in this matter. Some tax authorities set year-to-year variation thresholds regarding the taxable amounts reported, which can trigger a verification process.

Tax authorities may initiate tax audits as soon as they receive any relevant information for taxation that was previously unknown to them.

The statutory limitation on initiating a procedure for the collection of back taxes is ten years after the end of the tax period for which the tax has not been levied, preventing any such procedure afterwards. For withholding tax, stamp duties and VAT, this statutory limitation is five years after the end of the relevant tax period.

Once the procedure has been initiated, the statutory limitation on determining a supplementary tax is 15 years after the end of the tax period to which the procedure relates, preventing any levy of tax afterwards, even if a back-taxes procedure has been opened. For VAT, this statutory limitation is ten years. Withholding tax and stamp duties, however, benefit from a specific status as no statutory limitation applies once a procedure has been initiated.

As a rule, tax authorities in Switzerland, whether cantonal or federal, have an audit department with an internal and an external unit. The latter can visit the taxpayer’s premises.

These audits are only based on printed documents. Data made available electronically for such purpose is not available in Switzerland yet.

Tax inspectors may be interested in all aspects of taxation. Regarding companies, compliance of the accounts with accounting and tax rules is the most important aspect for legal entities examined by tax auditors. Whereas, for natural persons, justification of the deductions claimed and the existence of unlimited liability are frequently examined.

The exchange of information, mutual assistance between tax authorities as well as the constant development of international tax rules have certainly led to an increase in tax audits in Switzerland.

Assisting clients targeted by requests for information from foreign countries in the context of a foreign tax audit is a frequent activity of this firm.

One unique feature of the Swiss tax authorities is their willingness to discuss tax matters with taxpayers openly. In the context of a tax audit, the best strategy is often to demonstrate transparency regarding the facts and technical accuracy regarding the legal analysis.

If a taxpayer disagrees with an assessment decision made by a tax authority, they may submit a formal complaint to the tax authority that has issued the assessment decision, within 30 days as from notification. The formal complaint procedure is an official appeal procedure that forces the tax authority to subsequently issue a new decision.

Such a formal complaint must be filed in writing. With regard to income tax, the complaint does not need to be substantially motivated (except if the complaint is made following a discretionary assessment decision). The taxpayer only has to express their unquestionable disagreement with the assessment decision. Formal complaints in the field of other taxes must be sufficiently motivated, meaning that the taxpayer has to demonstrate that the assessment decision is obviously inaccurate.

If the formal requirements are met, the tax authority has to re-examine the tax assessment decision and may modify, in whole or in part, the first decision or reject the taxpayer’s formal complaint.

The filing of such an administrative complaint is a requisite step before initiating a judicial phase. Under certain circumstances and only if approved by the taxpayer, a sufficiently motivated administrative complaint filed to the tax authorities may be directly transferred to the judicial authorities.

While Swiss tax law does not provide for a particular deadline for the tax authorities to respond to a formal complaint lodged by a taxpayer, they have a constitutional obligation to process the claim within a reasonable time. The meaning of “reasonable time” is not clearly defined and depends on the specific circumstances of the case at hand. The taxpayer can lodge a judicial claim if a tax authority does not process their formal complaint within a reasonable timeframe. Such a situation rarely occurs in practice. 

If the taxpayer is not satisfied with the decision of the tax authority on their formal complaint, they have the ability to lodge an appeal with a first-instance cantonal court or, in matters falling under the authority of the SFTA, with the Swiss Federal Administrative Court. The deadline to lodge an appeal is 30 days as from notification of the contested decision on a formal complaint.

Swiss administrative procedure rules, including tax procedure rules, provide for an essentially written litigation process and imply few or no investigative acts, such as hearings, due to the technical nature of tax law and the generally numerical content of litigation.

Following the taxpayer’s appeal, the tax administration files a reply before the court, supporting the position of its tax decision. Usually, an additional exchange of replies is allowed, before the case is kept to be judged by the court until the judgment is rendered.

Evidence must be provided in writing at the time of lodging the appeal and is particularly important because of the burden of proof in Swiss tax litigation (see 4.4 Burden of Proof in Judicial Tax Litigation).

Regarding tax matters in general, as well as within the context of judicial tax litigation, the tax authority must establish the facts upon which the tax liability is based, while the taxpayer has to prove the facts that reduce or eliminate that liability.

If the elements gathered by the tax authority provide sufficient evidence of the existence of taxable items, it also falls upon the taxpayer to establish the truth of their own claims and to bear the burden of proof regarding elements that justify their exemption.

Under a criminal tax procedure, the tax authority may use coercive measures (eg, warrants and sequestrations) to gather sufficient evidence against the taxpayer.

Legal analysis and reassessment of the tax administration’s position is the most important aspect of tax litigation. While producing new documents, evidence or even expert reports is still possible under judicial proceedings (except in front of the Federal Supreme Court), it is usually more efficient to produce evidence during the proceedings’ early stages.

Settlements with the tax administration are still possible but less likely once the dispute has begun, as tax authorities sometimes have an interest in having their practice confirmed by the courts.

With the exception of a back-taxes procedure, which often covers the previous ten years and where statutes of limitation may play a minor role for the earliest years depending on the case at hand, timing is generally not an efficient strategy.

Statutes and case law are the most important sources for Swiss tax courts. With regard to cross-border and local tax issues, the ECHR’s case law is also taken into account, in particular within criminal tax procedures. International guidelines also provide elements of interpretation on which the courts occasionally rely. Tax doctrine (academic articles) is a source of interpretation used by courts, but they are not bound by it.

Appeal before a Second-Instance Court

Any tax decision previously challenged before a first-instance court may be appealed. There is no limit based on the value of the dispute. A decision of a first-instance court can be appealed to a second-instance cantonal court (if provided by cantonal rules) within 30 days of service of the first-instance court’s decision. The tax authority or the taxpayer, or both, can lodge an appeal.

The procedural principles are the same as those applying before the first-instance court. Judgments of a second-instance court may be appealed to the Federal Supreme Court.

Appeal before the Federal Administrative Court

The Federal Administrative Court is the ordinary administrative tribunal of the Swiss Confederation. The main role of the Federal Administrative Court is to examine the legality of decisions in matters falling under the authority of the Federal Administration.

Lower instances are mainly the federal departments and subordinate federal offices. The Federal Administrative Court hears appeals against decisions of federal authorities, in the fields of withholding tax, stamp duties and VAT in particular.

A decision of the Federal Administrative Court may be appealed to its second-instance court within 30 days following the first-instance court’s decision under certain circumstances. The appeal can also be lodged by the tax authority or the taxpayer, or both. Judgments concerning tax matters processed by the Federal Administrative Court may be appealed directly to the Federal Supreme Court.

Appeal before the Federal Supreme Court

If the taxpayer considers that the final decision of the second-instance cantonal court or of the Federal Administrative Court violates their rights, they may lodge an appeal before the Federal Supreme Court. Such an appeal must be lodged within 30 days of notification of said contested decision.

The Federal Supreme Court is the highest judicial authority within the federal state. It issues final rulings in tax matters.

For the different stages in tax appeal procedures before all Swiss courts, see 4.1 Initiation of Judicial Tax Litigation and 4.2 Procedure of Judicial Tax Litigation regarding the first-instance cantonal court, as well as 5.1 System for Appealing Judicial Tax Litigation regarding the second-instance cantonal court, the Federal Administrative Court and the Federal Supreme Court. At these various stages, the procedure is essentially the same.

However, it should be noted that the Federal Supreme Court does not re-establish the relevant facts of the case. These facts may only be corrected by the Federal Supreme Court if it finds that they have been blatantly incorrectly established by a lower court, or that they have been based on a violation of law. This means that the Federal Supreme Court takes its decisions solely by applying the law to facts that have already been determined.

In the canton of Geneva, before the first-instance cantonal court, judges usually renders their decisions with the help of two associate judges specialised in tax law. The second-instance cantonal court is usually composed of three professional judges. The composition of cantonal courts may vary depending on the case at hand and local rules.

The Federal Administrative Court and the Federal Supreme Court are, as a rule, composed of three judges but may be composed of five judges in special cases. Before these courts, a single judge may render a judgment for clearly inadmissible or insufficiently motivated cases.

Swiss courts do not share the criteria on which they appoint judges to render their decisions.

Swiss tax law does not provide for national mediation or arbitration procedures.

With regard to forms of alternative dispute resolution (ADR), double taxation treaties concluded by Switzerland usually refer to a mutual agreement procedure (MAP), which is independent of Swiss domestic law procedures. Thus, the time limits provided for by domestic law have no influence on the MAP and vice versa. In particular, the 30-day deadline to file a claim against a tax assessment decision is not suspended by a request for a MAP. In order to preserve their rights according to Swiss tax law, taxpayers should file a complaint against the relevant tax authority, which will be suspended during the MAP.

Following the initiation of a MAP, certain double tax treaties provide arbitration procedures in tax disputes. After a certain period (from two to three years), taxpayers may request that unresolved questions under the MAP be settled by an arbitration procedure. Such procedure may be denied if a domestic court has already rendered a decision (unlike the initiation of MAPs).

In international tax matters, a MAP may be carried out if the procedure initiated before the competent Swiss and foreign authorities is unsuccessful.

The MAP is initiated at the taxpayer’s request before the competent authority in the taxpayer’s country of residence. However, the taxpayer itself is not a party since the MAP is a procedure between one state and another.

In Switzerland, the competent authority for MAPs is the State Secretariat for International Financial Matters (SIF). There is no obligation of result between Switzerland and the relevant other state.

The international arbitration process (as part of an initiated MAP) starts with the taxpayer’s request. Double tax treaties define the applicable terms of the arbitration process, if available. Requests for tax arbitrations are quite rare in practice.

Swiss tax law does not have national mediation or arbitration procedures.

Given the overall complexity of taxation in Switzerland, taxpayers have an interest in discussing the more complex cases with the tax authorities at an early stage; for instance, in the case of international corporations considering moving to Switzerland, so they can obtain confirmation of their future taxation. The same applies to individuals.

In this regard, tax rulings are commonly used in Swiss tax practice, although Swiss tax law does not expressly refer to rulings. It should be noted that a tax ruling does not provide any preferential taxation over the applicable law. It constitutes, instead, a quicker and more efficient way to provide clarity with regard to taxation questions.

In order to obtain a ruling, the taxpayer has to disclose all relevant information, usually in the form of a letter. If the competent tax authority agrees with the taxpayer, the ruling request is sent back to the taxpayer with the stamp of the authority, which provides the taxpayer with confirmation from the State on the tax treatment of a transaction or a situation. Tax rulings are not public.

Regarding the binding effect of such rulings, the taxpayer is protected by the constitutional principle of good faith as far as they rely on the information received by the competent tax authority. Swiss case law also especially emphasises the importance of implementing the facts precisely described in the ruling.

There is no legal entitlement for a taxpayer to obtain a binding ruling, even though tax authorities are mostly willing to deal with ruling requests. This means that taxpayers cannot contest a refusal to give a ruling request.

As mentioned in 6.2 Settlement of Tax Disputes by Means of ADR, the MAP or arbitration procedure (if available), in the case of double taxation with a country with which Switzerland has signed a double taxation agreement, requires that all relevant steps between the relevant Swiss and foreign entities be respected.

There is no limit to the value of the claim. According to the OECD Model Tax Convention on Income and on Capital of 2017, the taxpayer has to request the initiation of a MAP within three years from the first notification of the action resulting in double taxation. Under these same rules, the taxpayer may only request an arbitration afterwards if the competent authorities under the MAP have not reached an agreement within two years after the initiation of a MAP.

Under BEPS rules, an average of 24 months has been set to finalise MAPs. Switzerland committed to this objective in relation to the improvement of dispute settlement as from 2016. According to the latest report of the SIF, the average time taken in Switzerland to finalise an open case in 2020 was 20 months. In 2021, Switzerland won the first international 2020 MAP award from the OECD, for the average time taken to close transfer pricing cases.

There is no appeal possible against the outcome of a MAP or arbitration procedure.

ADR is mostly used in transfer pricing cases. With regard to MAPs, and according to the 2020 statistical report of the competent authority, out of 430 cases pending as at 31 December 2020, 200 related to transfer pricing issues.

As a preliminary remark regarding direct taxes, it should be underlined that a taxpayer seeking to limit the amount of tax it pays is not acting in a criminally punishable manner. Furthermore, in Switzerland, anti-avoidance rules are not contained in one specific piece of legislation; they actually take different forms.

Back-Taxes Procedure

Swiss tax law includes a purely administrative procedure, the back-taxes procedure, which aims at recovering amounts not dutifully declared by the taxpayer.

Swiss criminal tax law deals with misdemeanours (or “contraventions”), which lead to a fine, and tax offences, which may imply imprisonment.

Breach of procedural obligations, tax evasion and attempted tax evasion are the main misdemeanours.

Breach of procedural obligations refers to situations where, for example, the taxpayer fails to file a tax return or does not comply with a duty to provide information. Regarding the sanction, for direct income and equity taxes, the penalty is limited to CHF10,000. For other types of tax, the limit varies as developed below.

Tax evasion related to direct taxes is where the taxpayer, with intent or through negligence, omits certain items in their tax return, or causes a final assessment to be incomplete. If a tax evasion is ruled, the fine may vary from one third to three times the amount of tax evaded. The statute of limitations is ten years. Regarding attempted tax evasion, where a taxpayer tries to elude taxes, the fine amounts to two thirds of the amount determined for complete evasion. The statute of limitations is six years.

Regarding indirect taxes, where the principle of spontaneous taxation applies, the SFTA can issue additional tax assessments in the event of tax evasion, tax jeopardy or non-compliance with legal requirements (eg, failure to report within the deadline provided by law).

For withholding tax purposes, fines vary from CHF5,000 to a maximum of CHF30,000. The same applies to stamp duties, except that the maximum amount, if it results in a higher fine, can be extended to up to three times the amount of evaded tax.

Under VAT provisions, tax evasion can lead to a maximum penalty of CHF800,000, which is extendable to up to twice the amount of evaded tax. In the event of aggravating circumstances, the maximum penalty is doubled and can lead to imprisonment for up to two years.

Tax Evasion Procedure

A back-taxes procedure, which aims at recovering amounts not dutifully declared by the taxpayer, generally triggers a tax evasion procedure. Forgery and withholding tax at source diversion are the main tax offences.

Forgery is the use of fraudulent documents (eg, false financial statements or salary certificates) and is a qualified tax offence with a maximum penalty of imprisonment for up to three years and a minimum fine of CHF10,000. Tax at source diversion is where a person required to collect tax at source misappropriates the amounts collected for their own benefit or for that of a third party. The maximum penalty is imprisonment for up to three years.

In tax offences, the payment of back taxes is always due. Under certain circumstances, a criminal process is avoidable if the taxpayer spontaneously announces amounts not dutifully declared to the tax authorities.

For tax misdemeanours, the competent authority for the processing of back taxes and for tax-evasion procedures is the same authority, namely the cantonal tax authorities or the SFTA for federal taxes and then the courts. As a rule, these two procedures are conducted simultaneously and set by tax law.

For tax offences, the Public Prosecutor is competent. In such cases, the tax or criminal authority, depending on the case, may decide to suspend one procedure during the settlement of the other. The procedure is set by criminal law. The criminal procedure is generally more elaborate than the tax procedure and leaves more room for investigative acts.

The Public Prosecutor is only competent regarding the criminal part of the tax offence. The calculation of the amount of taxes due remains within the tax authorities’ competence.

Tax authorities initiate such proceedings when they suspect that a tax return or final assessment is incomplete, or that self-reporting requirements are missing (under the spontaneous declaration procedure). As mentioned (see 7.1 Interaction of Tax Assessments with Tax Infringements), a back-taxes procedure generally implies a tax evasion procedure, which is of a criminal nature.

Depending on the case at hand, the case may evolve into a more serious offence, but most cases develop into a two-way procedure of back taxes and tax evasion.

For tax misdemeanours, as the tax authority establishing the back taxes also establishes the criminal tax penalty, the process is treated by the relevant authority, whether it is the tax authority or the relevant administrative court.

For tax offences, while the back-taxes procedure will still be treated by the tax authority or the relevant administrative court, the Public Prosecutor is competent regarding the criminal aspect.

In cases of tax evasion, the good co-operation of the taxpayer makes it possible to reduce the amount of the fine within the framework of the law.

However, the amount of taxes due, which relates to the back-taxes procedure, cannot be reduced.

For tax misdemeanours, if the taxpayer does not challenge the decision of the tax administration, the procedure is not pursued before the administrative courts, but the payment of the fine remains due. Before the administrative courts, full payment of the tax, late interest and the fine, and withdrawal of the appeal, are also possible. However, this does not change the criminal tax qualification of the procedure.

For tax offences, the issue is a matter for the criminal courts and the mere payment of the tax due is not enough to stop the procedure, since the issue of tax payments is not addressed by the Public Prosecutor.

Where the taxpayer acknowledges the material facts, a simplified procedure may be possible before the Public Prosecutor under certain conditions. The Public Prosecutor prepares an indictment that the taxpayer may accept or refuse.

For tax misdemeanours, appeal possibilities are the same as explained in 7.4 Stages of Administrative Processes and Criminal Cases, 7.5 Possibility of Fine Reductions and 7.6 Possibility of Agreements to Prevent Trial, if specific deadlines are observed.

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

As a rule, transactions and operations challenged under transfer pricing rules or general anti-avoidance rules have resulted in two-way procedure cases of back taxes and tax evasion before the competent authorities.

In the vast majority of double taxation cases, domestic legal remedies are used first to correct the tax situation. However, in parallel with domestic remedies, taxpayers increasingly use MAPs available under double tax treaties. As to arbitration, it is quite rare in practice, as arbitration clauses are still relatively new in double tax treaties signed by Switzerland.

For Switzerland, the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) entered into force on 1 December 2019. As Switzerland follows the amending view, the implementation of new standards on dispute resolution to avoid double taxation (MAPs and arbitration) require, following internal procedures, a modification of double tax treaties. As only a few Swiss double tax treaties have been amended bilaterally, or have recently been implemented with such new standards, no impact has yet been observed regarding the use of international remedies by taxpayers. In recent years, MAPs on transfer pricing issues have continued to increase.

As mentioned, in Switzerland, anti-avoidance rules are not contained in a specific act or provision. However, the Swiss Federal Supreme Court has developed a general exception of tax avoidance and abuse of rights, applicable to almost all Swiss taxes.

This general exception also applies to Swiss double tax treaties if no other anti-avoidance provision is provided under such treaties.

Under the principal purpose test (PPT) introduced by the MLI, the scope of anti-avoidance rules is broader than the previous applicable rules developed by the Swiss Federal Supreme Court. It is thus expected that additional controversial issues will be raised between tax authorities and taxpayers. As the interpretation of the PPT is broadly discussed among scholars, Swiss tax courts will probably have to clarify the application of the PPT.

International transfer pricing adjustments are usually challenged first and foremost under domestic tax courts. Although Switzerland does not have any explicit transfer pricing legislation, those courts as well as the tax authorities, will, in practice, apply the OECD Transfer Pricing Guidelines.

The majority of tax treaties signed by Switzerland do not contain the corresponding adjustment provisions of Article 9, paragraph 2 of the OECD Model Tax Convention. Consequently, taxpayers in practice increasingly request MAPs.

Advance pricing agreements may be used in the context of rulings (see 6.4 Avoiding Disputes by Means of Binding Information and Ruling Requests) to avoid or mitigate transfer pricing matters.

With regard to APAs, and according to the 2020 statistical report of the competent authority, 304 cases were pending during 2020. Their number has increased compared to the 2019 statistical report.

Among the various cross-border tax situations, withholding tax is probably the matter that gives rise to the most litigation. This is due to the high withholding tax rate (35%), as well as the fact that Switzerland is a large importer of foreign capital. In this respect, transfer pricing policies as well as transfer of assets and functions within multinational groups are under increasing scrutiny from the Swiss tax authorities.

In general, a ruling is the most effective way to prevent litigation under Swiss tax law and to prevent the risk proactively.

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.

Under the Swiss double tax treaties, arbitration clauses are currently not always provided for and, if available, rarely used.

As part of the MLI, Switzerland has accepted to apply part VI to its amended or recently implemented double tax treaties (see 8.1 Mechanisms to Deal with Double Taxation).

When an arbitration clause is available, double tax treaties concluded by Switzerland do not limit access to specific matters but may require the fulfilment of certain conditions (eg, no binding decision rendered by a domestic court of one of the states involved in the cross-border dispute).

Under the MLI, Switzerland has reserved its right to replace the two-year period provided with a three-year period before authorising the initiation of arbitration.

Switzerland prefers the baseball arbitration procedure, a method also known as “final offer arbitration”, under which a proposal is submitted by each competent authority of the relevant state to the arbitration panel. The arbitration panel is then bound and has to decide between the two proposals.

This methodology is preferred by Swiss authorities as it stimulates reasonable proposals from the various competent authorities involved and eases dispute settlements. It is currently available under the double tax treaty with the USA, and the double tax treaty with Germany.

Switzerland is not an EU member state but is actively involved in the recent developments made by the OECD.

As mentioned above, Switzerland implemented the MLI as part of the BEPS recommendation of the OECD and accepted the inclusion of binding arbitration clauses under its amended double tax treaties (see 8.1 Mechanisms to Deal with Double Taxation).

Apart from a constant growth in the use of MAPs, the initiation of an arbitration process within a cross-border tax disputes is still rarely seen in practice. According to the 2020 statistical report of the competent authority, out of the 236 cases opened under MAPs, 181 were closed. It is expected that the implementation of binding arbitration clauses under double tax treaties may ease the settlement of disputes under MAPs, as competent authorities may prefer to avoid binding decisions from an arbitration court.

From their inception, Switzerland actively participated in discussions related to the OECD Two-Pillar solution in order to ensure a consensus-based multilateral solution and that the position of small and innovative countries be taken into account in the final design of the rules. In January 2022, the Swiss Federal Council confirmed its intention to implement Pillar One and Pillar Two into national law. Swiss citizens are expected to vote around June 2023 on the implementation of the new rules, in particular Pillar Two, as from 1 January 2024.

Pillar One should only have few consequences in Switzerland compared to Pillar Two. The consensus-based multilateral solution supported by the Swiss authorities is expected to mitigate controversies related to the digital economy and provide certainty for concerned entities at international level. However, the implementation of such new rules still implies various challenges for the authorities and may result in additional complexities for taxpayers residing in Switzerland, which may trigger additional controversies at Swiss level.

The Swiss competent authorities do not publish decisions related to international settlement of disputes, which are confidential to ensure a framework of compromises between the competent authorities of various states.

Switzerland benefits from a wide tax treaty network, currently being renewed following the recent entry into force of the MLI. Such network is thus the main source of legal instruments used by the competent Swiss authorities to settle international tax disputes (see also 8.1 Mechanisms to Deal with Double Taxation).

Taxpayers are not part of the international tax arbitration process they initiate (see 6.2 Settlement of Tax Disputes by Means of ADR) and thus, are not able to hire any independent professionals to engage in arbitration discussions. They are, however, able to hire such professionals to be their representatives as well as initiate the procedure on their behalf and at their own costs.

Competent authorities, as part of the arbitration procedure, are usually able to designate at least one representative to the arbitration board. According to the set of rules provided by the relevant double tax treaty, independent professionals may be designated due to the competent authorities’ inability to appoint their own employees.

A formal administrative complaint with the tax authority is free of charge. However, such a procedure may take some time and lead to significant late interest fees on the amount of taxes due if the taxpayer does not settle enough instalments. This item needs to be addressed at an early stage to mitigate costs related to administrative litigation.

Before cantonal courts, the amount of the fees varies from one canton to another. In Geneva, before the first-instance court, the fees are calculated according to the complexity of the case, but cannot exceed CHF10,000. An indemnity for legal costs may be charged to the unsuccessful party, including the tax authority. The same rules apply before the second-instance court.

Before the Federal Administrative Court and the Federal Supreme Court, 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. As a rule, legal costs are borne by the unsuccessful party.

Fees are settled once the judgment is rendered, but an advance payment is generally required by the courts. There is no interest payment on it. If the required advance payment is not paid, the courts are unable to move forward with the procedure if the applicable law specifies that this is an admissibility requirement.

There is no possible compensation based on taxation ultimately considered void and null under Swiss tax law. However, any amount already paid by the taxpayer will have to be reimbursed with potential interest in their favour.

The MAP, including the arbitration procedure, is free of charge. However, the taxpayer bears the costs incurred by their request (in particular, the fees of their possible representative).

Statistics of the Geneva authorities are not publicly available.

The latest report available from the Federal Supreme Court indicates that this Court processed, during 2021, 323 cases in tax matters. Additional statistics on the values dealt with are not available.

The latest report available from the Federal Administrative Court indicates that this Court processed, during 2021, 170 cases in tax matters. Additional statistics on the values dealt with are not available.

In 2021, the Federal Supreme Court processed 227 cases for direct taxes, two for stamp duties, 20 for indirect taxes, seven for withholding tax, two for military tax, seven for double taxation, 50 for other taxes, nine for customs and six for tax exemption. Additional statistics on the values dealt with are not available.

In 2021, the Federal Administrative Court processed 30 cases for subsidies, 71 cases for customs, six cases for stamp duties, three cases for direct taxes, 48 for VAT taxes, six for various indirect taxes, 20 for withholding tax, none for double taxation and one for miscellaneous finance. Additional statistics on the values dealt with are not available.

According to a private study carried out in 2017, and on the basis of Federal Supreme Court data from the past ten years, an appeal filed by a taxpayer with the Federal Supreme Court in tax matters succeeds only 14% of the time. No update is available yet.

The best way to manage a tax dispute is to avoid it by planning, essentially through an early tax analysis of the situation and, if necessary, by an advance tax ruling.

In pending procedures, the legal analysis of the tax administration’s position is an essential step. Using a tax specialist is also key when dealing with a tax controversy.