Tax litigation in Switzerland: overview

A Q&A guide to civil and criminal tax litigation in Switzerland.

This Q&A provides a high level overview of the key practical issues in civil and criminal tax litigation, including: pre-court/pre-tribunal process, trial process, documentary evidence, witness evidence, expert evidence, closing the case in civil and criminal trials, decision, judgment or order, costs, appeals, and recent developments and proposals for reform.

To compare answers across multiple jurisdictions, visit the Tax Litigation: Country Q&A tool.

The Q&A is part of the global guide to tax litigation. For a full list of jurisdictional Q&As visit www.practicallaw.com/taxlitigation-guide.

Michael Nordin and Diana Oswald, Schellenberg Wittmer AG
Contents

Overview of tax litigation

Issues subject to tax litigation

1. What are the most common issues subject to tax litigation in your jurisdiction?

Civil tax litigation is generally referred to as "assessment litigation" (rather than "civil litigation", which carries an entirely different meaning in Switzerland).

Matters subject to tax litigation include:

  • The establishment of the taxable base.

  • The interpretation and legal qualification of certain facts.

  • Questions relating to the competences of the tax authorities.

  • Disagreements between the taxpayer and the tax authority regarding any other part of a formal decision issued by the tax authority.

Tax litigation can occur either in the normal course of a mixed assessment procedure or following a tax audit in the case of taxes subject to self-assessment (mostly at the federal level) (see Question 4).

Assessment litigation generally takes place before the tax authorities as a first step, before being brought to the administrative courts.

Criminal tax litigation focuses on investigating and punishing offences such as tax evasion or tax fraud (see Question 3).

For example, recent topics of tax litigation include the:

  • Jurisdiction to issue tax rulings regarding direct federal income tax (Swiss Confederation or cantons).

  • Question of refundability of Swiss dividend withholding tax in connection with hedged financial transactions.

Additionally, a number of topics related to business succession continue to give rise to litigation, such as the distinction between dividends, salary and capital gains in the presence of earn-out clauses, non-compete covenants and so on.

Legislative framework

2. Outline the legislative framework and principal pieces of legislation governing both civil and criminal tax litigation.

Assessment litigation

Switzerland is a federal state, with 26 cantons and about 2,300 municipalities. All levels of government have certain rights to levy taxes, and, accordingly, the applicable legislative framework varies depending on the type of tax levied.

This contribution will focus on direct taxes levied by the Swiss Confederation and the cantons, and on the main indirect taxes levied by the Swiss Confederation.

The main pieces of legislation governing litigation relating to direct taxes are the:

  • Swiss Federal Income Tax Act, which governs federal income tax.

  • Swiss Cantonal and Communal Income Tax Harmonisation Act.

  • Relevant cantonal tax Acts governing cantonal and communal income taxes.

Regarding indirect taxes, disputes most commonly arise under the Swiss Value Added Tax Act and the Swiss Withholding Tax Act.

Criminal tax litigation

Criminal tax litigation is governed by the:

  • Specific criminal law provisions contained in the legislation mentioned above.

  • Criminal Administrative Law Act.

  • Federal Code of Criminal Procedure.

Tax evasion and other criminal tax offences

3. What are the key elements that constitute tax evasion and other main criminal tax offences in your jurisdiction?

Swiss law distinguishes between the following tax offences:

  • Negligent failure to carry out procedural duties. This is a failure by the taxpayer to file a tax declaration or comply with any other duty under the applicable tax law. Such failure is sanctioned by a penalty of up to CHF10,000 in the case of income and wealth taxes (the limits vary with regard to other taxes).

  • Tax evasion. A taxpayer commits tax evasion if he or she causes the tax authority to wrongfully abstain from issuing a tax assessment, or if he or she causes a final assessment to be incomplete. Tax evasion is generally sanctioned by a penalty of up to three times the amount of tax evaded, although this penalty can be higher in some cases (for example, the limit is up to five times the amount of tax evaded in the case of VAT).

  • Tax fraud. Tax fraud is a qualified form of tax evasion. In addition to causing the tax authority to wrongfully abstain from issuing a final assessment or causing such assessment to be incomplete, this offence requires the taxpayer to:

    • use falsified documents (for direct taxes); or

    • develop machinations or a "web of lies" to purposefully mislead the tax authorities in a way that is not easily discoverable (for indirect taxes).

    Tax fraud is generally punishable by a penalty or imprisonment, plus the relevant penalty for tax evasion.

Both negligent failure to carry out procedural duties and tax evasion are prosecuted by the tax authorities, not criminal prosecutors. In both cases, the actual penalty will vary depending on the degree of fault or negligence.

Tax fraud is prosecuted by ordinary criminal prosecutors and is listed on a person's permanent criminal record.

 

Pre-court/pre-tribunal process

Assessment, re-assessments and administrative determinations in civil law

4. Outline the procedure for tax assessments, re-assessments and administrative determinations in civil law.

The cantonal tax authorities in each of the 26 cantons are competent for the levy of federal, cantonal and communal direct taxes (in some cantons, municipal authorities may also be involved). The cantonal authorities include, for example, the:

  • Cantonal Tax Office Zurich (Kantonales Steueramt Zürich) for the Canton of Zurich.

  • Tax Administration of the Canton of Berne (Steuerverwaltung des Kantons Bern) for the Canton of Berne.

  • Cantonal Fiscal Authority (Administration Fiscale Cantonale) for the Canton of Geneva.

Direct taxes are levied in accordance with a "mixed procedure", under which the taxpayer files a tax declaration, which the competent tax authority will check before issuing an assessment decision.

Taxpayers can correct their tax returns even after filing, as long as no final tax assessment decision has been issued.

The tax authorities can assess supplementary taxes if new facts or evidence come to light which justify re-opening a case (most often the case due to findings of withholding tax or VAT audits, which can be communicated by the Federal Tax Administration (FTA) to the cantonal authorities that levy direct taxes).

Indirect taxes are levied by the FTA. They are levied under a self-assessment procedure, where the taxpayer is expected to spontaneously hand in a tax declaration and pay the tax due according to its own assessment. The FTA will not immediately check this assessment nor issue a formal assessment decision, but rather proceed to a tax audit (usually covering several years) at a later date.

The taxpayer is well advised to proceed with all due diligence when filing returns regarding indirect taxes, as even negligent failure to submit a declaration can be criminally prosecuted, and harsh coercive measures (including, for example, the seizure of bank records) are available to the tax authority prosecuting even fairly minor offences.

Regardless of the type of tax and the competent authority, it is standard procedure in Swiss tax law that decisions taken by a tax authority must, first, be appealed to this authority, which can then reconsider its decision, before an appeal can be lodged with the competent courts. Often, a special department of the relevant tax authority is responsible for handling these appeals, which are also referred to as "objections". In objections, the taxpayer can contest the facts of the case and the application of the law. The appeal must be made in writing. Whether or not the appeal must be substantiated at this early stage varies. For example, substantiation is not necessary for appeals regarding federal direct tax, while it is required in some cantons. The appeals process (to the tax authority and to the courts) is discussed in more detail at Question 15.

Resolving disputes before commencing court proceedings

5. What are the main procedures used to resolve disputes before commencing proceedings in a civil court/tribunal?

Alternative dispute resolution procedures are not provided for in Swiss tax law.

However, Swiss tax authorities are generally quite open to discussing a particular case with the taxpayer either:

  • Before they issue a decision (that is, if they feel they need further information or clarification on certain points).

  • During the appeals process before them.

Tax authorities may be amenable to solid arguments for a particular tax treatment of a fact pattern, or ready to compromise on certain points, if the legal situation is not clear, which can often be the case.

Additionally, binding tax rulings can be obtained from the competent tax authorities free of charge on most questions regarding Swiss tax law. For this reason, taxpayers usually contact the tax authorities before the implementation of a new structure or the signing or closing of a transaction in order to have their assessment of the tax consequences of the structure or transaction confirmed.

For a tax ruling to be binding, five conditions must be met:

  • The relevant facts must be fully and truthfully disclosed.

  • The ruling must be requested from the competent authority.

  • The law must not have changed since the ruling was issued (rulings do not withstand legislative change).

  • The taxpayer must have taken measures that cannot be reversed without incurring a financial loss, based on its trust in the validity of the tax ruling.

  • If a ruling does not comply with the relevant laws, as interpreted subsequently by a court, this must not have been clear either to the taxpayer or to its tax adviser (in other words, the ruling must not have clearly been illegal).

However, in light of impending spontaneous and automatic exchange of tax rulings as a result of the Base Erosion and Profit Shifting (BEPS) project (a project of the Organisation for Economic Development and Co-operation to address tax avoidance and for greater international harmonisation of tax rules), Swiss authorities have already, and may continue to, become more reluctant in granting tax rulings.

In international matters, Switzerland is not a party to the Convention 90/436/EEC on the elimination of double taxation in connection with transfer pricing. Although a number of Swiss double tax treaties contain arbitration clauses, these clauses are generally not self-executing, but rather require further agreement between the contracting states regarding the modalities of implementation. For this reason, arbitration in international tax disputes is generally not an option. Procedures before the competent authorities are more common. In the past years, over 100 mutual agreement procedures involving Switzerland have been initiated every year.

Switzerland is also open to entering into advance pricing arrangements with foreign authorities, but has not issued any specific guidance or regulations regarding these arrangements.

Elements of the offence in criminal law

6. What are the elements of the main criminal law offences in tax litigation?

The elements of the main criminal law offences are outlined in Question 3.

A primary defence is lack of intent (that is, mere negligence). However, this does not exempt from liability for the offence, but merely mitigates the applicable penalty.

Early resolution

7. What are the main procedures used for the early resolution of criminal law offences before trial?

For a number of offences considered to be reasonably minor, the prosecuting authorities can issue penalty notices, without prior trial or court involvement.

Depending on the applicable provisions, these penalty notices must generally be appealed within 30 days from service, or a request for a court decision must be submitted, failing which the notice will acquire the same binding force as a final court decision.

If the prosecuting authority is a tax authority, it may also be amenable to enter into discussions about granting a type of plea deal, especially where the facts of the case or the legal interpretation to be given to these facts are unclear. For example, they can agree with the taxpayer on the amount of a fine if the taxpayer admits to some wrongdoing, accepts to pay a fine and waives the right to a formal criminal trial before a court.

Additionally, the voluntary disclosure procedure provides the opportunity for a taxpayer to disclose tax offences (for example, tax evasion or tax fraud) in order to avoid the initiation of a criminal prosecution and the imposing of fines, provided that the following conditions are met:

  • No tax authority has prior knowledge of the evasion/fraud.

  • The taxpayer co-operates with the tax authority.

  • Serious efforts are made to pay back the taxes owed.

The voluntary disclosure procedure is applicable for direct taxes. It may also be applicable, under similar conditions, for value added taxes and withholding taxes. However, it is always a crucial condition that the taxpayer is disclosing the offence on his own accord.

 

Trial process

Format of the hearing/trial

8. What format does the hearing/trial take?

Appeals in tax matters (assessment litigation) are generally decided based only on written submissions. The taxpayer must produce certain documents (such as business records). Refusal to do so will lead to a reversal of the burden of proof to the detriment of the taxpayer.

Generally, the taxpayer is not entitled to a public hearing in assessment litigation. However, there are some cantonal procedural provisions that provide for the possibility of an oral hearing. Such hearing is public, but the taxpayer can request a private hearing, which will generally be granted as tax proceedings deal with financial and business aspects, and the taxpayer has a legitimate interest to keep these private.

The decisions of the tax authorities can be overturned both in favour or to the detriment of the taxpayer (that is, a court can hold that a taxpayer owes more tax than the tax authority had originally assessed). However, in the latter case the taxpayer must first be heard. Courts will generally not overturn a decision to the detriment of the taxpayer, except where the non-conformity of the original decision with the law is blatantly obvious.

In criminal cases, there is no duty to co-operate. The taxpayer has a right to a public trial before a court. He or she can request a private hearing or trial, but must present valid reasons for this request.

A hearing or trial can take place even if a party fails to attend. However, depending on the applicable procedural rules and the specific circumstances of the case, failure to attend can lead to a delay in proceedings.

Role of the judge/arbitrator/tribunal members

9. What is the role of the judge/arbitrator/tribunal members in both civil and criminal tax litigation?

Assessment litigation

In assessment litigation, the role of the judge is to assess whether or not the tax authority has determined the tax due in accordance with the applicable legal framework. In doing so, courts of first instance will also review the facts. Higher courts will limit themselves to reviewing the application of the applicable laws and regulations, while relying on the facts as established by the lower courts, except in cases in which it is obvious that the facts have been incorrectly established.

Criminal tax litigation

In criminal tax litigation, the role of the judge is to assess whether the prosecutor has proven that an offence has been committed.

The principle of investigation is applicable in criminal tax litigation, and gives the taxpayer the right to request the court to take evidence submitted into consideration, where such evidence appears to be relevant to the case. However, it does not give the taxpayer the right to demand a full, new investigation, where an investigation has already been carried out by the competent tax authority, following which the case was transferred to the ordinary criminal prosecutor (as is the case, for example, if the taxpayer appeals a penalty notice (see Question 7)).

Further, in litigation before the Federal Supreme Court, the right to invoke new facts not previously presented before the lower courts is limited to new facts resulting from the decision of the previous instance.

Commencement of proceedings: civil law

10. What is the procedure for commencing tax litigation proceedings in civil law and/or a taxpayer appealing a decision of the tax authority?

Generally, a taxpayer has 30 days to appeal an assessment or other decision of the tax authorities or a court, starting from the day following notification of the assessment or decision. However, the applicable time limits should always be verified. For example, interim decisions must often be appealed within ten days. These deadlines cannot be extended, but can be reinstated in certain exceptional cases and can be interrupted by holidays in some cantons (notably in the summer and over the Christmas holidays), although these interruptions do not apply in matters relating to federal direct tax.

In addition to taxpayers, tax administrations can often commence litigation. For example, in federal direct tax matters, the Federal Tax Administration can intervene in its capacity of supervisory authority and challenge a cantonal tax administration's assessment decision.

The cost of an appeal differs depending on which canton or federal authority is competent and on the tax concerned. The appeals procedure to the tax authority issuing the disputed decision is often free of cost to the taxpayer (although not in all cases). The taxpayer will generally incur fees for appeals to the courts.

The competent authorities will request an advance of the fees they anticipate the taxpayer will have to pay in case it loses. If this advance is not paid, the authority will refuse to deal with the appeal.

The costs the taxpayer can expect to incur will depend on the:

  • Time and work the instance of appeal will need to invest.

  • Amount in dispute.

  • Importance of the case.

  • Conduct of the taxpayer.

There are some cases in which a party can be exempt from bearing the costs of proceedings. For example, if the proceeding is of general interest, or if the taxpayer is unable to bear the costs and the appeal does not appear to be pointless.

Advances on fees will be reimbursed to the taxpayer if a decision is rendered in its favour. In this case, the taxpayer can also request compensation for its necessary expenses (for example, costs of legal representation) (see Question 31).

 
11. Must a taxpayer pay the disputed tax before leave to appeal the tax authority's decision is granted?

The taxpayer does not have to pay the disputed tax to appeal the tax authority's decision.

Only tax assessments that have entered into force and are no longer subject to appeal are enforceable, although the tax authorities will often set a deadline for payment of taxes that have not yet been finally assessed. A taxpayer that subsequently loses the appeal will usually have to pay interest on arrears starting from the date of this deadline, but no other penalties.

In the case of indirect taxes, a taxpayer that, for example, disputes subjection to VAT, can opt to pay VAT. In these cases, the taxpayer should clearly state that the payment made is conditional, and that the obligation to pay the tax is disputed.

Commencement of proceedings: criminal law

12. What is the procedure for commencing tax litigation proceedings in criminal law?

Criminal tax proceedings are generally initiated by either the tax authority or the public prosecutor, depending on the offence (see Question 3), or by the taxpayer (voluntary disclosure procedure) (see Question 7).

Government response

13. How has the government responded to recent civil and criminal law cases to improve the court procedure?

Assessment litigation

There have not been any recent initiatives that have notably changed the assessment litigation procedure in recent years.

Criminal law

There have recently been efforts to harmonise criminal tax law, with a view to better aligning it with common criminal law regarding the investigative powers of the prosecuting authorities, procedure, time bars, and so on. However, this project has currently been put on hold by the Swiss Federal Council and is not expected to regain any momentum before the reform of Swiss withholding tax (currently underway) has been completed.

Burden of proof

14. What is the burden of proof in both civil and criminal tax litigation proceedings?

Assessment procedure and litigation

As a general rule, the burden of proof is as follows:

  • Taxpayer: any elements that reduce or eliminate the tax burden.

  • Tax authorities: any elements that give rise to the duty to pay tax or increase the tax burden.

In the assessment procedure, the taxpayer has a duty to co-operate and must provide the tax authority with certain documents and information. In many cases, non-compliance with this obligation results in a reversal of the burden of proof. If the information provided by the taxpayer is insufficient for the tax authority to issue an assessment, the authority can issue a discretionary assessment, in which it determines the taxable base to the best of its knowledge.

Criminal law

In criminal tax litigation proceedings, the prosecution must establish that an offence has been committed. The taxpayer has no obligation to co-operate.

Main stages

15. What are the main stages of typical court proceedings for tax disputes?

Assessment litigation

Mixed procedures. In mixed procedures (which are used for direct taxes) (see Question 4), the stages are typically as follows:

  • Submission of a tax return by the taxpayer.

  • Issue of an assessment decision by the tax authority.

  • Appeal/objection by the taxpayer to the tax authority.

  • Appeal against the authority's decision to the cantonal court of first instance, and then to the cantonal court of second instance, if any (there are cantons in which there is only one cantonal court).

The procedure before the cantonal courts can differ depending on the canton, but is usually broadly as follows:

  • The taxpayer submits a substantiated appeal to the court.

  • The court sends a copy of the appeal to the tax authority which gave the decision that is being appealed, asking this authority to comment on the appeal and submit the case file.

  • Depending on the case, a second exchange may follow, whereby the taxpayer is invited to comment on the tax authority's comments. A second exchange is, in particular, necessary where new facts or means of evidence are presented, since the counterparty's right to be heard must be safeguarded. However, this is rarely the case, as tax authorities tend to refer to their own decisions on appeal and do not make further comments.

  • Oral hearings are the exception.

  • All deficiencies of the tax authority's decision can be appealed (whether of a legal or factual nature). The cantonal courts can fully review legal and factual questions.

  • The proceedings will culminate either in a court decision or in the original decision being remitted back to the competent tax authority. The latter can happen, for example, in cases in which the court determines that it is not in possession of all the relevant facts of the case and would like the tax authority to further clarify certain aspects.

Decisions of the cantonal court of last instance can be appealed to the Federal Supreme Court. The procedure before the Federal Supreme Court is similar to that before the cantonal courts. However, the Federal Supreme Court will only review questions of a legal nature. Its review of the facts is limited to overturning any blatantly and obviously wrong establishment of the relevant facts. The Federal Supreme Court will either hand down a decision or remit the case back to the tax authority, often accompanied by instructions on what the tax authority must do.

Self-assessment procedures. In the self-assessment procedures (used, for example, for the levy of VAT or withholding tax), the stages are typically as follows:

  • Submission of a tax return along with payment of the tax due by the taxpayer.

  • Tax audit followed by a formal decision of the Federal Tax Administration (FTA).

  • Appeal by the taxpayer to the FTA. In cases in which the FTA's original formal decision followed extensive exchanges with the taxpayer and was fully substantiated, the FTA (with the taxpayer's approval) or the taxpayer can request that the case be referred directly to the Federal Administrative Court, without need for a second decision (on appeal) by the FTA.

  • The FTA's decision can be appealed to the Federal Administrative Court, and then to the Federal Supreme Court.

The procedure is generally based on written exchanges. Oral hearings are the exception and even rarer than before the cantonal courts, although the Federal Supreme Court will sometimes publicly debate its decision in cases it holds to be particularly important. However, this is not a hearing, as the parties involved will not be invited to participate in any way. Rather, this is a public display of the court's decision-making process.

The Federal Administrative Court can review both factual and legal questions, but will not substitute its own judgment for the judgment of the FTA where the FTA has considerable leeway in the application of the law.

Criminal law

The stages of criminal law proceedings differ depending on whether:

  • The prosecuting authority is a tax authority or the public prosecutor.

  • The offence concerns direct or indirect taxes.

This will determine whether the Swiss Criminal Administrative Law Act (CALA) or the Swiss Criminal Procedure Code (CrimPC) is applicable.

As a general rule, the taxpayer is informed of the opening of a criminal tax procedure and informed that it is under no obligation to co-operate.

Indirect taxes. CALA is applicable in matters concerning indirect taxes. A tax authority will investigate the case, and for this purpose can use the coercive measures provided for in CALA. The respective tax authority can issue a penalty notice fining the taxpayer for offences committed.

However, the taxpayer can request that a court rule on the commission of an offence. The tax authority must always transfer the case to a court if its supervisory authority considers that the conditions for imprisonment are fulfilled.

The competent court will generally be the cantonal court of first instance. The case will be transferred to this court by the public prosecutor. The court will rely on the administration's investigation and will not order investigative measures of its own. The procedure followed by the cantonal courts is set forth in the CrimPC. Generally, proceedings are oral. These proceedings are generally public, although the court can restrict or exclude members of the public from hearings, in particular if the legitimate interests of a person involved so require. The judge presiding over the proceedings will:

  • Schedule a hearing.

  • Decide on the evidence that can be taken at this hearing.

  • Decide on the composition of the court.

  • Notify the parties of the above.

  • Set a deadline for the parties to submit and justify requests for further evidence.

At the end of the hearing, the parties can present their applications and justify them. The court will then deliberate and issue its judgment, which will be notified to the parties.

Direct taxes. In cases concerning direct taxes, the violation of procedural duties and tax evasion are investigated and prosecuted by the same tax authority that assesses the tax in question (that is, the cantonal tax authority).

The cantonal tax authority does not have access to the same coercive measures as the FTA under CALA, except for cases involving serious tax offences, for which the Federal Councillor responsible for the Swiss Ministry of Finance can order special investigative measures.

These procedures usually end with the issuing of a fine by the tax authority. This fine can first be appealed to the issuing tax authority, and then to the relevant cantonal court of first instance. From there, the procedure is the same as described above for indirect taxes. Tax fraud is referred by the cantonal tax authorities to the public prosecutor who will bring the matter before the cantonal criminal court of first instance.

 

Documentary evidence

Disclosure of documents in civil proceedings

16. What documents must the parties disclose to the other parties and/or the court in civil proceedings? Are there any detailed rules governing this procedure?

The taxpayer has a duty to co-operate during the tax assessment procedure, which is set forth in the respective governing laws. For example, under the Swiss Federal Income Tax Act (FITA), taxpayers have a duty to (Articles 124 et seq., FITA):

  • Submit a tax return in a timely fashion.

  • Submit the relevant annex documents to the tax return.

  • Provide information to the tax authority on request.

  • Keep certain business records for ten years.

The courts can request the tax administration to provide the case file.

The taxpayer will generally be able to consult the case file once it is part of the court's records, but can be prevented from doing so if the tax administration can show that allowing the taxpayer to consult the file would be contrary to a legitimate public interest. However, in this case, these parts of the file cannot be used against the taxpayer without the taxpayer having been given at least a summary of the relevant facts contained in it, if not access to the actual file.

Special rules/considerations

17. Are there any special rules or considerations concerning the disclosure or discovery of documents in civil tax litigation?

Professional secrecy applies in assessment litigation, which means that neither a tax administration nor a court can request documents that are protected by, for example, attorney-client privilege, bank secrecy or other professional secrets.

As a rule, courts do not order any discovery of their own, but rather limit themselves to assessing a case based on the facts put before them by the parties (that is, the taxpayer and the tax authority). If a court deems that the facts are not sufficient for it to decide a case (not even taking into consideration the rules regarding burden of proof), it can remit the case back to the competent tax authority, instructing it to decide in a certain manner if certain facts turn out to be established, or in another manner if another fact pattern comes to light on further investigation.

Disclosure in criminal proceedings

18. What documents must the parties disclose to the other parties and/or the court in criminal proceedings? Are there any detailed rules governing this procedure?

A taxpayer accused of committing a tax offence is not obliged to disclose any information or documents, but has a right to remain silent in accordance with the privilege against self-incrimination. However, whether this principle is strictly respected remains questionable, as the commission of a tax offence generally leads to parallel administrative and criminal procedures and to the levy of a supplementary tax. The Chinese wall put into place between the two procedures is not always sufficient in practice, although they are deemed to be sufficient in theory, as has notably been acknowledged by the Swiss Federal Supreme Court and confirmed by the European Court of Human Rights (Chambaz v Switzerland (Application No. 11663/04)).

Following the highly publicised case of J.B. v Switzerland (Application No. 31827/96), in which the European Court of Human Rights held that the guarantees proper to criminal law proceedings in general also protect a taxpayer subject to criminal tax proceedings, Switzerland changed the relevant provisions of its tax laws, barring tax authorities from using evidence obtained in the course of procedures regarding the levy of supplementary tax in criminal proceedings.

This means that, at least in theory, there is a clear delimitation between criminal tax proceedings and any assessment procedure (including the assessment procedure regarding the levy of supplementary tax).

Special rules/considerations

19. Are there any special rules or considerations concerning the disclosure of documents in criminal tax litigation?

Attorney-client privilege applies in criminal tax litigation. However, in Switzerland, this privilege does not extend to in-house counsel and their work products.

Additionally, public prosecutors have been known to confiscate reports delivered by external counsel on internal investigations, and it is not yet entirely clear if this is legitimate or not, although the authors believe that these documents fall within the scope of privilege and cannot be confiscated.

Confidentiality rules other than attorney-client privilege are generally not relevant to tax litigation (for example, doctor-patient confidentiality).

 

Witness evidence

Trial considerations

20. Do witnesses of fact give oral evidence or do they just submit written evidence? Is there a right to cross-examine witnesses of fact?

Witness evidence is available in criminal litigation, but does not play a significant role in assessment litigation in Switzerland.

Usually, witnesses give oral evidence. Witness evidence can only be taken into account if the relevant facts cannot be clarified sufficiently in other ways. The taxpayer and/or its representative can ask supplementary questions to witnesses. However, witness evidence hardly ever plays any role in tax litigation.

Witness preparation

21. Provide a brief outline of the procedure for preparing witnesses in both civil and criminal cases. Are there any special or unique features to consider for witness evidence in criminal cases?

Civil law

Not applicable.

Criminal law

Not applicable.

Hearsay evidence in civil and criminal trials

22. Are there any rules concerning the introduction of hearsay evidence in civil and criminal trials?

Civil trials

In practice, witness evidence does not play a significant role in assessment litigation.

Criminal trials

Hearsay evidence is not excluded in criminal proceedings, but is only allowed as sole evidence if there is no other direct witness available. However, this is uncommon in practice.

 

Expert evidence

Expert reports in civil trials

23. What are the rules concerning the introduction of expert reports in civil trials?

Expert reports can be introduced in Swiss tax litigation, as in any other type of litigation before Swiss courts.

There are two kinds of expert reports:

  • Expert reports requested and paid for by the taxpayer. These are treated in the same way as any other submission of the parties, notably with regard to their evidential value. However, according to a recent decision of the Federal Supreme Court (in a civil case), the more substantiated an assertion made by a party to a proceeding is, the more substantiated the reply to this assertion must be. This means that the submission of expert reports by a taxpayer on a certain issue may make it necessary for the tax authority (which decision is being challenged) to submit more detailed arguments of its own in order to convince the court.

  • Expert reports requested and paid for by the court (or ultimately by the losing party). These reports have more authority, but are rare in tax litigation. They are almost never requested with regard to legal questions, as the court alone is competent to answer these questions, and rarely for questions in accounting or finance matters. However, especially in criminal tax litigation, the prosecution can call forensic accountants to give expert evidence.

Expert evidence in civil trials

24. What are the rules concerning the introduction of expert evidence in civil trials?

There are no specific rules concerning the introduction of expert evidence/reports by a taxpayer (see Question 23).

In the case of expert evidence requested and nominated by the court, the taxpayer can make objections against the nomination of the expert. An expert can be liable for scientific wrong expert evidence and for violation of professional secrets. In any case, the taxpayer can request for supplementary questions, which must be answered by the expert. Since the principle of independent consideration of evidence is applicable, the judges must be convinced of the usability of the expert evidence. Otherwise, the court can consider appointing another expert.

Expert evidence in criminal trials

25. What are the rules concerning the introduction of expert evidence in criminal trials? Is it possible to introduce expert reports?

Tax authorities or criminal prosecution authorities can introduce expert evidence or reports, if it is necessary to clarify certain facts or special knowledge is required.

Special considerations

26. Are there any special considerations for introducing expert evidence/reports in both civil and criminal trials?

Civil trials

There are no special considerations for introducing expert evidence/reports in civil trials.

Criminal trials

There are no special considerations for introducing expert evidence/reports in civil trials.

 

Closing the case in civil trials

27. What are the rules governing the submission of both written and oral argument in closing a civil trial?

Since assessment litigation usually consists of written proceedings, closing arguments will also be submitted in writing. Where, exceptionally, there are oral closing arguments, these arguments should summarise the written submission and stress its most important points, but should not repeat the entire submission.

 

Closing the case in criminal trials

28. What are the rules governing the submission of both written and oral argument in closing a criminal trial?

Generally, whether both written and oral argument can be submitted, and which method is more effective, depend on the canton. For example, criminal proceedings in the case of tax fraud are generally held orally (Swiss Criminal Procedure Code). However, the parties can also submit written arguments.

 

Decision, judgment or order

Civil law cases

29. What are the rules governing the issuance of a decision in civil cases?

In assessment litigation, the taxpayer is entitled to a decision giving reasons. Decisions by courts are generally more detailed than those rendered by the tax authorities.

There is generally no time requirement or deadline to render a decision, which sometimes makes it difficult to anticipate when a decision can be expected. For example, in the widely publicised Swiss withholding tax cases decided in 2015, it took the Federal Supreme Court over three years to reach a decision, and nearly six months passed between the oral deliberations and delivery of the detailed written decision.

Criminal law cases

30. What are the rules governing the issuance of a decision in criminal cases?

In criminal proceedings, cantonal courts of first instance must not fully substantiate every decision they issue. Rather, a taxpayer wishing to file an appeal must request a fully substantiated decision within ten days of the decision (see Question 15).

There is no specific deadline to render a decision in criminal proceedings. Courts must render their decisions within a just and reasonable time, which will depend on the individual case (see Question 29). However, this is not a serious concern in practice.

 

Costs

31. How is the issue of costs determined in both civil and criminal cases?

Assessment litigation

If the taxpayer's appeal is upheld, it can claim reimbursement of the expenses incurred that are deemed necessary for the defence of its interests and rights. However, Swiss courts are traditionally quite restrictive in interpreting what expenses are necessary for the defence of a taxpayer's interests. Notably, lawyer's fees are rarely fully reimbursed, and the reimbursable hourly rates are capped. The taxpayer must petition the court to be reimbursed, as the court will not award costs on its own initiative, except in litigation involving direct federal tax. Only taxpayers, but never the tax authorities, can be reimbursed for expenses incurred in connection with tax litigation.

The losing party can be ordered to pay interest on the amount contested before the court.

Criminal law

See above, Assessment litigation.

However, the taxpayer can be charged additionally for special investigative measures (for example, expert evidence or checking of accounts).

 

Appeals

Right to appeal in civil law

32. What are the main grounds for appealing a civil law decision?

All factual and legal deficiencies of the relevant tax authority's decision can be appealed. The cantonal courts and the Federal Administrative Court can fully review both legal and factual questions. The Federal Supreme Court only reviews questions of a legal nature, and its review of the facts is limited to overturning blatantly and obviously wrong findings of relevant facts.

Procedure to appeal in civil law

33. What is the procedure for appealing a civil law decision?

No permission is required to appeal. The time limit for bringing an appeal is generally 30 days from the day following notification of the decision. However, the applicable time limits should always be verified, as they may be shorter in certain cases, in particular with regards to interim decisions and decisions relating to certain indirect taxes. See also Question 15, Assessment litigation.

Right to appeal in criminal law

34. What are the main grounds for appealing a criminal law decision?

The main grounds for appealing a criminal law decision are generally as follows:

  • The requisite level of proof of commission of a tax offence has not been met.

  • There are mitigating factors that should have been taken into account (for example, lack of intent).

  • Any legal argument showing that the actions of the taxpayer do not constitute a tax offence.

Procedure to appeal in criminal law

35. What is the procedure for appealing a criminal law decision?

Judgments of cantonal criminal courts of first instance can be appealed to the relevant court of appeal. Notice of the intention to appeal must be given in writing or orally to the court of first instance within ten days of the issuing of the judgment. The court of first instance will then draw up the written judgment, stating the grounds for its decision. From the date of notification of the grounds, the deadline for filing a written appeal with the court of appeal is 20 days.

The court of appeal will notify the parties whether or not it deems the appeal admissible and, if it does, give the parties the opportunity to comment on the appeal. The oral proceedings are governed by the same provisions as in the first instance (see Question 15, Criminal law).

If the decision only relates to legal issues, the court of appeal can decide to deal with the appeal in written proceedings. If the court of appeal decides to consider the substance of the appeal, it will issue a new judgment, which will replace the judgment of first instance.

The judgment of second instance is subject to appeal before the Federal Supreme Court. The procedure before the Federal Supreme Court is generally based on written exchanges. Oral hearings are rare, although the Federal Supreme Court sometimes publicly debates its decision in cases it holds to be particularly important. The Federal Supreme Court can only review legal questions, except for cases in which the facts have obviously been wrongly established.

 

Recent civil law developments and proposals for reform

36. Outline the main recent civil law developments in tax litigation in your jurisdiction. Are there any proposals to reform civil law tax litigation?

In recent years, tax litigation has generally been on the rise, in the wake of a less co-operative environment between tax authorities and taxpayers.

In particular, in light of the Base Erosion and Profit Shifting (BEPS) project, an increase in transfer pricing litigation can be expected, a lot of which may revolve around establishing substance.

In addition, it remains to be seen how the addition of arbitration clauses to many Swiss tax treaties will influence the resolution of international disputes. With one exception, these clauses are not yet operational, but may however prompt the competent authorities to reach an understanding in mutual agreement procedures.

 

Recent criminal law developments and proposals for reform

37. Outline the main recent criminal law developments in tax litigation in your jurisdiction. Are there any proposals to reform criminal law tax litigation?

A major development in criminal tax law is certainly the implementation of the Financial Action Task Force Recommendations 2012. From 1 January 2016, "serious tax crimes" in the areas of both direct and indirect taxation have become predicate offences for money laundering. Switzerland defines tax fraud leading to tax evasion of more than CHF300,000 in a year as a serious tax crime.

 

Online resources

Compilation of Swiss federal law

W www.admin.ch/gov/de/start/bundesrecht/systematische-sammlung.html

Description. This website is maintained by the Federal Chancellery and is regularly updated. English translations are non-binding and offered as a service only.

Unofficial English translations of Swiss law

W www.swisstaxnetwork.ch/gesetze

www.mwstnetzwerk.com/Home/english-translation-of-the-swiss-vata-2010---list-of-contents

Description. Switzerland does not provide official English translations of its laws. However, these websites provide unofficial English language translations of the most important federal tax laws.

Laws of the Canton of Zurich

W www.zh.ch/internet/de/rechtliche_grundlagen/gesetze.html

Description. This website provides access to the classified compilation of the laws of the Canton of Zurich. This compilation is official, and maintained and regularly updated by the canton. English translations are generally not available.

Laws of the Canton of Geneva

W www.ge.ch/legislation

Description. This website provides access to the classified compilation of the laws of the Canton of Geneva. This compilation is official, and maintained and regularly updated by the canton. English translations are generally not available.

Laws of the Canton of Bern

W www.belex.sites.be.ch/frontend/texts_of_law?locale=de

Description. This website provides access to the classified compilation of the laws of the Canton of Bern. This compilation is official, and maintained and regularly updated by the canton. English translations are generally not available.

Decisions of the Federal Supreme Court

W www.bger.ch

Description. This is the official website of the Federal Supreme Court, maintained by its chancellery and regularly updated. English translations of the court's decisions are not available.



Contributor profiles

Michael Nordin, Partner, Head of Taxation Group in Zurich

Schellenberg Wittmer AG

T +41 44 215 9386
F +41 44 215 5200
E michael.nordin@swlegal.ch
W www.swlegal.ch

Professional qualifications. Switzerland, Attorney at Law, 1993; Switzerland, Certified Tax Expert, 2000

Areas of practice. Tax; mergers and acquisitions; reorganisations and restructurings, in particular those relating to financing and capital markets; advising private clients on strategic tax planning and other tax aspects; internal corporate investigations focusing on tax matters.

Non-professional qualifications. Dr iur, University of St. Gallen, 1996; LLM in International Taxation, New York University, 1997

Languages. German, English, Swedish

Professional associations/memberships.

  • Swiss Bar Association.

  • Zurich Bar Association.

  • International Bar Association (IBA).

Diana Oswald

Schellenberg Wittmer AG

T +41 44 215 5252
F +41 44 215 5200
E diana.oswald@swlegal.ch
W www.swlegal.ch

Professional qualifications. Not applicable

Areas of practice. Tax.

Non-professional qualifications. Dr iur, University of Fribourg, 2015; MA in Management, University of Fribourg, 2014

Languages. German, English, French, Spanish

Professional associations/memberships. International Fiscal Association (IFA) Switzerland.


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