Refund procedures in both directions

Relief at source and relief by refund

A treaty rate is worth only what the procedure delivers. The convention leaves the procedure for granting the reduced rates to the domestic law of each state and to arrangements between the competent authorities.¹ Two models exist. Under relief at source, the payer applies the reduced treaty rate at the time of payment on the basis of documentation provided by the recipient. Under relief by refund, the payer withholds the full domestic tax and the recipient applies for the refund of the excess. Italy offers both, depending on the type of income and on the documentation available at the time of payment. Switzerland grants relief at source only in the notification procedure for substantial participations. For portfolio dividends and interest it applies the refund method without exception: the full 35 per cent is withheld and the Italian investor must reclaim 20 per cent of dividends or 22.5 per cent of interest.

The choice between the models has economic consequences. Under the refund method the recipient finances the excess tax until the refund is paid. For an Italian investor with a portfolio of Swiss shares, 20 per cent of every dividend is tied up for months or years. For institutional investors the liquidity cost can be substantial, while private investors with small amounts often abandon the claim because the cost of the procedure exceeds the refund. Lugano banks have responded with services that file refund claims on behalf of their clients, usually for a fee, and with the advice to hold Swiss shares through Italian intermediaries that can file on a collective basis.

The Swiss refund for Italian residents

A person resident in Italy who wishes to recover Swiss withholding tax files Form 95 with the Federal Tax Administration in Berne.² The form requires a certification of residence by the Italian tax authority and a declaration that the claimant is the beneficial owner of the income. The claim must be filed within three years after the end of the calendar year in which the taxable payment became due. That period is a forfeiture period, which cannot be interrupted or extended. After the claim has been filed, a separate limitation period of five years applies to the refund claim itself, and it is interrupted only by acts of the claimant directed at enforcing the claim.³ The Federal Tax Administration clarified these periods in a communication of 13 September 2022, which addressed in particular claims that it had rejected informally without a formal decision.

The Swiss administration examines refund claims with care. In the past it required Italian residents to prove that they had spontaneously declared the income in Italy, a requirement criticized in Italian literature as lacking a basis in the convention, whose only condition for the reduction of Swiss tax is that the claimant be the beneficial owner of the income.⁴ The Federal Administrative Court has since confirmed that beneficial ownership is assessed under the law of the source state and that the claimant must prove it.⁵ Claims involving large or unusual amounts, recent acquisitions of shares shortly before the dividend date, securities lending or derivatives that hedge the economic risk of the shares are reviewed for dividend stripping. Swiss practice treats a claimant who is obliged to pass the dividend on to another person, or who does not bear the economic risk of the shares, as not entitled to the refund. Lugano banks that file claims for their Italian clients therefore keep records of the purchase dates and of any hedging transactions.

Notes

1. Convention, Art. 29 paras. 1, 2 and 4, text (above): refunds "a richiesta dell'interessato o dello Stato di cui esso è residente", claims to be filed "in osservanza dei termini stabiliti dalla legislazione dello Stato contraente tenuto ad effettuare il rimborso", and the competent authorities "stabiliranno di comune accordo ... le modalità di applicazione del presente articolo". ↩
2. ESTV, "Italia", French version, https://www.estv.admin.ch/fr/italie (Form 95 for persons resident in Italy claiming the refund of Swiss withholding tax); Federal Administrative Court A-4469/2020 (above) (claim filed on Form 95). ↩
3. ESTV, "Verjährungsfristen Rückerstattung Verrechnungssteuer", https://www.estv.admin.ch/de/verjaehrungsfristen-rueckerstattung-verrechnungssteuer (three years after the end of the calendar year; five-year limitation interrupted only by acts of the claimant). PwC Switzerland, "Unklarheiten bei der Verrechnungssteuer betreffend Wiedereinreichungsfristen gemäss der Mitteilung der ESTV vom 13. September 2022 geklärt", https://www.pwc.ch/de/insights/steuern/unklarheiten-bei-der-verrechnungssteuer-betreffend-wiedereinreichungsfristen-gemaess-der-mitteilung-der-estv-vom-13-september-2022-geklaert.html. ESTV, Mitteilung-019-V-2022 of 13 September 2022, https://www.estv.admin.ch/dam/de/sd-web/CRXwZ24WXmmN/estv-mitteilung-019-v-2022-de.pdf (three-year period for treaty claims under Art. 27 para. 1 StADG, SR 672.2; relative limitation of five years and its interruption by analogy with Art. 17 paras. 1 and 3 VStG). ↩
4. Riccardo Scandroglio, "La richiesta di rimborso dell'imposta preventiva Svizzera", EC News, 23 August 2016, https://www.ecnews.it/fiscale/fisco-e-patrimonio/fisco-internazionale/richiesta-rimborso-imposta-preventiva-svizzera/. ↩
5. Federal Administrative Court A-4469/2020 (above). ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of October 2026.