DA-1 refund denied

Dears,

a few days ago I’ve received a letter from the tax office (Canton TI), stating that my request for refund of the withholding tax (2018) on VTI through DA-1 had been denied on the basis of art. 11 cpv. 1 of the “Ordinance on the credit of foreign withholding taxes” (ref. 672.201, https://www.admin.ch/opc/de/classified-compilation/19670167/index.html).
N.B. the document only exist in German, French and Italian.

Art. 11 belongs to section C (whose description is something like “taking into account passive interests, other expenses and tax deductions”) and states - more or less (directly from google translate… :grimacing:):

1 To calculate the maximum amount, interest income, other expenses and deductions with tax incidence are deducted from income.

2 The following distribution rules apply for the reduction:

a. interest expense is divided proportionally to the assets;

b. the other expenses connected directly to the incomes are divided between the relative incomes and the other expenses indirectly connected to the incomes proportionally to these incomes;

c. deductions with a tax impact connected directly to income are divided between the related incomes and deductions with a tax impact connected indirectly to income proportionally to these incomes.

3 Other expenses also include operating expenses, general administration expenses and income taxes deducted from net income in accordance with applicable law.

As the above explanation was - for me - not really clear ( :thinking:), especially the system they used to determine the amount (zero), I called the tax office and asked for clarification. They kindly provided a - locked - Excel sheet which they are using for the calculation.
I spent half an hour on it to understand the mechanism and tried to replicate the salient aspects in a google sheet, which you can find under this link: https://docs.google.com/spreadsheets/d/18EmDMJjPBnFy0EXmwFT8FKOi2Z6kCkMxLIVd8Jze1eM/edit?usp=sharing

The main point which was preventing me to get the refund is the deduction of interest on the house mortgage…

The main parameters used by the tax office in the calculation are (all values to be taken from your personal tax form):

  1. Total gross wealth (without debts)
  2. Total interest received from securities held
  3. Expenses for securities management
  4. Total passive interests (e.g. mortgage interests)
  5. Value of US securities
  6. Interests received from US securities
  7. Claimed withholding tax - L2WT (15%)
  8. Tax bracket

The tax office calculates:

  • the ratio (%) of US securities to the total gross wealth and - on this basis - the portion of passive interest to ‘charge’ to the US securities
  • the interest received from US securities as % of the total interest received from all the securities held and - on this basis - the portion of expenses for security management to ‘charge’ to the US securities

These two amounts will be deducted from the interest received from holding US Securities; if the balance is positive, the maximum refund will be calculated starting from this amount multiplied by your tax bracket (%).

Long story short: if you already deduct mortgage interests, you will be very unlikely able to get a refund… :frowning_face:

Of course, the impact depends on the value of the different parameters. I tried to play a little bit with those, in order to evaluate the effect of the changes; as I recently refinanced my 10y mortgage with a better interest rate, in 2020 I will have less interest deduction and thus I’ll be able to get some refund (not so in 2019, unfortunately…).

All the above was new for me and I don’t know if and to which extent it applies to other cantons, but I think it was worth sharing…

Based on the above, does it still makes sense to go with the VTI/VXUS split (if one choses the split only to be able to claim back withholding tax on VTI and not to over/underweight specific markets) or would it be easier to stick to VT ? :upside_down_face:

I dont get it, whats the difference between VTI, VT and VXUS regarding getting back withholding tax? I got 15% back last year feom VT &VXUS.

It seems to only apply to people with a mortgage though since they already get a tax credit there.

Good to know, I seem to recall some old discussion here related to the fact that holding VTI and “ex US” ETFs was more efficient (money possibly lost in taxes from dividend distribution for companies not in the US bought by the US ETFs)

edit: you had similar doubts, some time ago… (Tax declaration, #29 and Tax declaration, #31)

yeah, this seems to be the most impacting factor… probably I’m the only one with a mortgage then, as everybody here seems to have been able to get the refund ! :sunglasses:

You pay WHT on VXUS as well, you can claim that back with DA-1 as well.

Hi everybody

Same treatment than @weirded for me.

I’m living in the canton of Geneva and have just received my 2019 taxation. I have a mortgage on a foreign property.

DA-1 amount (approx CHF 80) was denied. However, they reimbursed me the retenue supplémentaire d’impôt US/Rückerstattung des zusätzlichen Steuerrückbehaltes USA.

They provide a detailed sheet with their calculations (below in French).

Éléments déterminants

Revenus mobiliers étrangers imposés ordinairement : A (income on which you ask DA1)
Revenus mobiliers totaux : B
Valeur des titres étrangers imposés ordinairement : C (taxable value of investments related to A)
Fortune brute : D (cash+investments only)
Intérêts passifs : E
Frais bancaires reconnus : F

Charges fiscales
Taux d’imposition pour l’impôt fédéral direct : X %
Taux d’imposition pour l’impôt cantonal : Y %
Taux d’imposition pour l’impôt communal : Z %

Calcul du droit au remboursement pour l’impôt étranger non récupérable de revenus imposés ordinairement

Montant de l’impôt non récupérable demandé : G

Revenus bruts : A
./. Intérêts passifs (E x C) / D : AA
./. Frais bancaires (F x A) / B : BB
Revenus nets déterminant pour le calcul de l’imputation forfaitaire : A - AA - BB (in my case it was < 0 or capped to 0.00)
Montant imputable maximum selon charges fiscales : 0.00
Imputation Forfaitaire d’Impôt calculée : 0.00

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