CHF 339,500 withholding tax – although the dividend was never paid out
Even a dividend resolution that is void under civil law can trigger a withholding tax liability of 35% – if the shareholder acted in bad faith when passing the resolution. The Federal Administrative Court (FAC) confirmed this in its ruling A-1577/2025 of 26 January 2026: subsequent annulment of the resolution, rejection of the financial statements, or pending civil and criminal proceedings do not change this.
Ruling A-1577/2025 of the Federal Administrative Court illustrates how unrelenting withholding tax can be – even where the underlying dividend resolution is based on falsified financial statements and is likely void under civil law. Anyone acquiring a company without first examining its tax position may end up paying dearly for the former shareholder’s mistakes. This article explains the facts of the case, the legal analysis, and what you should take away for your own practice.
In its ruling of January 26, 2026 (A-1577/2025), the Federal Administrative Court (FAC) commented on the question of whether a withholding tax claim arises even if the underlying dividend resolution may be null and void. The result is clear – and of great importance in practice.
Facts of the case
The case can be summarized as follows:
- All shares in A. AG have been held by the sole shareholder C. (hereinafter: existing shareholder) since the company was founded.
- On June 8, 2021, the existing shareholder approved an ordinary dividend distribution of CHF 970,000 due on December 17, 2021, based on the 2020 annual result.
- The withholding tax of 35% or CHF 339,500 owed on the dividend was reported to the FTA on time.
- On June 15, 2021 – i.e. one week after the dividend resolution – the existing shareholder sold all shares in A. AG to F. AG (hereinafter: new shareholder) for CHF 100. Upon completion, the benefits and risks as well as all claims to distributions after the completion date were transferred to the buyer.
- After the purchase, the new shareholder discovered that the existing shareholder had booked CHF 1.7 million in license sales to the illiquid G. AG – another company in his sole ownership – in the 2020 annual financial statements of A. AG. The existing shareholder therefore knew at the time of the dividend resolution that G. AG would never be able to pay these license fees.
- A. AG had neither the necessary retained earnings nor the required liquidity to distribute a dividend at all on June 8, 2021. In addition, there was no annual report with the legally required annexes.
- The dividend was never paid out. The withholding tax was not paid.
- It was not until April 23, 2023 that the Annual General Meeting rejected the 2020 annual financial statements and subsequently revoked the dividend resolution.
- The FTA insisted on the payment of CHF 339,500 withholding tax plus default interest from January 17, 2022.
The FAC had to clarify: Is the withholding tax owed despite the possible invalidity of the dividend resolution?
Assessment by the Federal Administrative Court
Principle: Tax even in the case of unlawful or immoral legal transactions
The FAC states that, according to established case law, a tax is levied even if the underlying legal transaction is unlawful or immoral (E. 2.6 of the ruling). A withholding tax claim can therefore also be based on a void or contestable dividend resolution.
Avoidance of withholding tax only if three cumulative conditions are met
Only under the following three cumulative conditions does a void or voidable legal transaction not trigger a withholding tax claim:
- A legal transaction is void or voidable under civil law;
- the legal transaction and its consequences are retroactively eliminated by the parties involved; and
- the parties involved acted in good faith.
If these conditions are not cumulatively fulfilled – in particular if the parties involved have acted in bad faith – the withholding tax claim remains valid.
Bad faith of the existing shareholder: the crucial point
As the existing shareholder knew at the time of the dividend resolution that the 2020 annual financial statements did not comply with commercial law and that the company had neither the necessary retained earnings nor the necessary liquidity to pay a dividend, the FAC assumed that he acted in bad faith without further ado. He had acted in full knowledge of the unlawful nature of the resolution – or should have recognized this with the necessary attention.
The decisive consequence of this (E. 3.2.3): The dividend resolution triggers the withholding tax claim at the time it falls due (December 17, 2021) – even if it proves to be null and void under civil law. Whether the dividend resolution is null and void or not is therefore irrelevant for withholding tax purposes.
The FAC also held that A. AG must take credit for the bad faith behavior of its existing shareholder, as the latter passed the dividend resolution as its governing body in the universal meeting.
Subsequent correction no longer helps
Neither the cancellation of the dividend on July 21, 2022 nor the revocation of the dividend resolution of December 1, 2022 could eliminate the withholding tax claim that had already arisen. The FAC confirms the established case law: once a withholding tax claim has become due, it can no longer be eliminated by subsequent revocation or waiver.
The so-called cancellation practice – which I will discuss in a separate article – did not help in this case either, for two reasons: Firstly, according to the case law of the Federal Supreme Court, the reversal practice cannot in any case be applied to the distribution of a dividend due, which the shareholders subsequently waive. Secondly, the correction of the annual financial statements was made more than a year after their approval and therefore outside the permissible time window – even if the cancellation practice had been applicable in principle.
Conclusion
BrinerTax Insight: In my practice, I see time and again that people forget how tight the corset of withholding tax is. Unlike with profit tax or income tax, corrections in the bookkeeping or annual financial statements are only possible under very strict conditions. Withholding tax is consistent: anyone who acts in bad faith will not be helped by subsequent repairs.
The ruling of the FAC once again makes it clear how expensive withholding tax errors are: 35% of the amount of the declared dividend, in this case CHF 339,500 on a dividend of CHF 970,000 – plus default interest of 4% since January 17, 2022.
The case is particularly explosive from a company acquisition perspective: the buyer unknowingly took over a company with a current withholding tax claim of CHF 339,500. A tax due diligence prior to the purchase would have shown that the 2020 annual financial statements did not comply with commercial law and that the dividend resolution based on them was questionable. This is a clear message for CFOs, lawyers and trustees who support corporate transactions: a tax audit of the target company – and in particular its annual financial statements – is essential.
Tax protection for dividends and withholding tax
A dividend resolution is not routine – it has tax consequences that can no longer be reversed. I assist companies, entrepreneurs and CFOs with the correct planning and processing of dividend distributions and with tax audits in the context of corporate transactions – from annual financial statements and withholding tax declarations to tax due diligence reports.
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FAQ on the correction of dividend resolutions and withholding tax
Yes, the withholding tax claim arises at the time the dividend is due in accordance with the resolution of the Annual General Meeting – regardless of whether the dividend was actually paid out. A later non-payment or cancellation does not change this in principle.
A shareholder acts in bad faith if they act in full knowledge of the unlawful nature of a resolution – or should have recognized this with the attention required by the circumstances. In this case, the existing shareholder knew that the 2020 annual financial statements did not comply with commercial law and that the company had no distributable profits.
Only under very strict conditions: The legal transaction must be void or voidable under civil law, the consequences must be eliminated retroactively and all parties involved must have acted in good faith. If one of these three requirements is not met – in particular good faith – the withholding tax claim remains valid.
Under certain conditions, the reversal practice makes it possible to correct taxable supplies that have already been recorded before the withholding tax claim arises. However, it only applies if the correction is made within one year of the end of the financial year in question and before any inspection by the FTA. In this case, the deadline had long since expired. More on this in a separate article.
When a company is purchased, outstanding tax claims are also transferred to the buyer. Tax due diligence checks the annual financial statements, dividend resolutions and withholding tax declarations of the purchase object for risks – and protects the buyer from expensive surprises, as in this case.
About the Author
Adrian Briner
Certified Swiss Tax Expert / Certified Public Accountant
Founder and Owner of Briner Tax Advisory AG
With over 15 years of experience in Swiss and international corporate tax law, Adrian Briner advises companies, entrepreneurs and CFOs on complex tax issues – from restructurings, financing, tax due diligence in corporate transactions and employee participation plans to international tax rulings.
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