CapLaw-2012-35

On 7 March 2012, the Federal Administrative Court rendered an important judgment on the issues of ownership and treaty abuse in connection with fully hedged total return swaps. A Danish bank had entered into such swaps for Swiss equities and, in order to hedge its exposure, acquired the necessary number of Swiss underlyings. While Swiss withholding tax was withheld on the dividends declared in relation to the Swiss equities, the Federal Tax Administration refused the refund of the withholding tax under the Denmark-Switzerland tax treaty, arguing that the bank did not have beneficial ownership and had engaged in treaty abuse.…