Personal criminal liability for tax oversight company functions: Key Swiss Court decision on intragroup loans

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Criminal liability for withholding tax on interest paid on intragroup loans: Heightened risk for financial executives

Key takeaway of the decision

In its judegment of February 3, 2025 (6B_90/2024), the Swiss Federal Supreme Court confirms the criminal liability of an employee in charge of accounting and tax matters of a company that paid intragroup interest at a rate considered excessive by the cantonal tax authorities. The offense? Having omitted to report the excessive interest payments to the Swiss Federal Tax Authorities (SFTA).

What are the facts?

• In April 2011, a Swiss company received a CHF 93 million loan from an Irish group affiliate, with an annual interest rate of 3.15% for a five-year period.
• The Cantonal Tax Administration of Vaud (ACI) audited the company’s accounts for 2010 to 2012 and informed the Swiss company's business controller on July 1, 2014, of “tax risks related to hidden equity and interest paid on intragroup loans.”
• Following this alert, the business controller requested a tax risk analysis from a third-party advisor, along with a transfer pricing study to assess whether the interest rate complied with the arm’s length principle applicable to intragroup loans. This analysis concluded that any interest rate between 3.07% and 4.69% would be considered compliant with the arm’s length principle.
• The ACI disagreed and proposed a compromise rate of 2.5%. This rate was accepted by the company in January 2015 and applied to fiscal years 2011 to 2016.
• In 2015, the SFTA conducted a random audit of the company’s accounts and similarly considered part of the interest expense unjustified for tax purposes, proposing the same 2.5% rate as ACI for the Swiss withholding tax for 2011 to 2015.
• The company paid the corresponding withholding tax in July 2016.
• In 2018, the SFTA opened an administrative criminal investigation against unknown persons under Articles 37 et seq. of the Federal Act on Administrative Criminal Law (DPA), on suspicion of withholding tax evasion under Art. 61(a) of the Withholding Tax Act (WTA) in connection with the company's operations for fiscal years 2013 to 2015.

What were the key factors behind the federal court's decision?

The Federal Court decided that the business controller had acted with at least contingent intent by failing to spontaneously declare the excessive interest within 30 days of the approval of the 2014 financial statements. Key factors included:

• His background: With a university degree in economics and after being involved in the ACI discussions, he could not have been unaware by June 2015 that the excessive interest characterized a deemed dividend subject to withholding tax.
• His role: He was the only person in Switzerland responsible for accounting and tax matters, including the preparation and signing off the financial statements after management approval.
• His autonomy: He independently managed accounting and tax issues and was the main point of contact with the ACI during the audit.

Key considerations

This decision reinforces that under the DPA, when an offense is committed in the course of managing a legal entity or in any other capacity on behalf of a third party, criminal liability can be assigned to the natural person who committed the act (Art. 6(1) DPA).

In this case, the business controller had “managed accounting and tax matters with a certain degree of autonomy” and was therefore personally liable under Art. 6(1) DPA.

However, in a separate decision issued on the same day (6B_93/2024), the Federal Court dismissed the criminal liability of the third-party advisor who had conducted the transfer pricing analysis.

In perspective

This decision reflects the increasing scrutiny from tax authorities regarding the tax practices of multinational groups. It complements the Federal Court’s July 17, 2024, decision on transfer pricing.

The decision underscores the importance of the arm’s length principle in intragroup transactions and the need for heightened vigilance during the approval of financial statements period. Financial executives should be aware of the dual risks involved:

• A tax risk for the company (taxation of excessive interest, late payment interest),
• A personal criminal risk for employees responsible for tax matters.

This case also highlights the principle of self-assessment in withholding tax, which requires proactive disclosure by the taxpayer and their representatives.

Article written by Pauline Radovitch