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:

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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

I’m not sure if the decision of the tax office has a legal ground. I’m not a lawyer, but the interest payments should be counted in proportion to your actives?

So if you have 500k in funds that yield 2%, 700k mortage at 1% and a home that is worth 1’000k, then 2.3k of the 7k interest payments should be deducted from the 10k dividends.

If you make the calculation (10k*15%)/(10k-7k*(500k/(500k+1'000k))), then you would need a tax rate of 20% to receive the full amount.

@xorfish indeed, this is what they did according to my understanding. I’ve run your numbers in the Google sheet (case F) and the result is the same as per your calculation.
The issue with my situation is that until last year I had quite high mortgage interests (mortgage from 2010). Moreover, the value of US securities was a small part of my net worth.
I’ll try to re-run the simulation with my 2020 numbers (lower mortgage and increase of US securities) to see if I’m entitled to receive something back…

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Hi,

In the document you linked : DA-1 process the following point is important

Wer die Anrechnung ausländischer Quellensteuern nicht beantragt oder darauf gemäss den Artikeln 3–7 keinen Anspruch hat, kann verlangen, dass bei der Veranlagung zu den schweizerischen Steuern vom Einkommen die im Vertragsstaat in Übereinstimmung mit dem Doppelbesteuerungsabkommen erhobenen Steuern vom Bruttobetrag der Erträge abgezogen werden.

As a result I believe if the request is denied you should still be able to ask the tax authority to reduce your taxable amount of the amount you paid abroad to implement the prevention of double taxation.

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hi @HoiZame yes, I think this is possible but this would just entitle to a reduction of taxes based on one’s tax bracket (i.e. a % of the withheld amount and not the full withheld amount)

Yes, better than nothing but in my situation at the time (declaration 2018) the withheld amount was 135 and my bracket 18% -> I could have saved ca. 24 CHFs

I think what is important to highlight here is that we often advocate in favor of the US funds also for the possibility to fully recover the 15% through DA-1 (as simple as that ! :wink:) while it’s not necessarily the case.

Nevertheless US funds have also other advantages (less spread, lower transaction costs etc) so they may be worth it even without taking into account the 15% refund…

You also might get a partial refund. In the above example you would still get 1.15k(77%) of the 1.5k withholding taxes back if your marginal tax rate is 15%.

Hi People, thanks for the insight. I’ve looked in the forum and haven’t found an answer to my question.

I’ve understood that for US securities held by a US fund, we can get 15% refund through DA-1 (as long as you’ve filled out the W-8 form).

Until now, I’ve invested only in VWRL CHF, for the low TER und avoidance of FX risk,

On the long-term, all things remaining equal, would I be better off keeping the VWRL, not facing FX risk or going for a US based fund (VT should be an equivalent to VWRL if I’m not mistaken ?) and then get the 15% refund, but facing FX risk.

Btw, the 15% of my dividends received from US securities already went above the minimum of 50 CHF.

Thanks in advance for your insight and the helpful infos.

There are no FX risk difference between VWRL and VT, for the rest please have a look at IE vs US domiciled funds (VWRL vs VT)

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Thanks a lot for the swift reply.

You can scratch the “for US securities”. It doesn’t make a difference what securities the fund holds: 15% will be withheld on the fund’s distributions to you (and possibly be refunded), regardless of its holdings.

Thanks, I got confused on the different level.

I received my 2018 and 2019 tax assessment confirmation from Basel Stadt and my request for DA-1 refund has been denied. No specific reason given, except that the provided details (annual broker dividend summaries and US tax forms, I think 1042-S) are inadmissible.

While the amount in question is not very significant (297 CHF), I am concerned about this and would like to request if anyone has received a similar feedback from BS and if so, what was the approach taken to counter this? Thanks for your feedback.

The best is to ask the tax office why (call them or send a letter). It’s different in each canton.
It’s possible that your marginal tax rate is lower than 15%. Or sometimes, they also do mistakes.

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Thanks! My marginal tax rate is approx. 37% so that could not have been a factor. I will call and send them an email and post here if they reply.

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