When an undeclared dividend costs 378,000 francs

A taxpayer from Valais lost 378,000 francs in withholding tax after failing to declare a dividend arising from the liquidation of the family’s property company. The case, confirmed by the Federal Supreme Court according to Le Matin, illustrates with rare starkness a principle that many SME directors are unfamiliar with: withholding tax is not always simply an advance payment that is automatically recoverable.

For a family business, a self-employed person or a trust company, this case goes far beyond being a mere tax news item. It serves as a reminder that exceptional transactions — such as inheritance, liquidation, a substantial dividend, the sale of a company or the opening of a bank account — must be handled with the same rigour as day-to-day accounting. A single omission can turn a withholding intended to safeguard the tax return into a definitive loss.

The liquidation dividend omitted from the tax return

According to *Le Matin*, the case concerns a 78-year-old widow from Valais. Following her husband’s death in 2019, she received a substantial dividend the following year from the liquidation of the family’s property company. This transaction followed the sale of the company for just over one million francs.

As provided for under the Swiss withholding tax mechanism, a 35 per cent withholding tax was deducted at source from the income in question. In this case, the withholding amounted to 378,000 francs. In principle, this amount could have been refunded to the taxpayer, provided the income was correctly declared to the tax authorities.

The problem arose from the 2020 tax return. The taxpayer, who had completed it by hand, failed to declare the dividend. Nor did she indicate the new bank account into which the money had been paid, or the shares she held in the company in liquidation. A few months after the return was filed, the Valais tax authorities requested further documentation regarding this dividend. The taxpayer then applied for a refund of the withholding tax.

The tax authorities refused. The case then proceeded to court. The taxpayer argued that it was a mistake. The judges did not accept this version of events. According to the published judgment, they considered that the size of the dividend made a simple oversight difficult to believe, particularly as several details relating to the transaction had been omitted at the same time. Neither her age, nor her limited knowledge of tax matters, nor the personal difficulties she was facing were sufficient to overturn the assessment. The Federal Supreme Court upheld the ruling in a judgement handed down on 20 July 2026. The taxpayer is also liable for 9,000 francs in legal costs.

Withholding tax is not a mere administrative formality

Withholding tax plays a special role in the Swiss tax system. It is levied, in particular, on interest and dividends of Swiss origin. The rate referred to in the case is 35 per cent. Its purpose is not merely to generate revenue: it also serves as a safeguard. By withholding a portion of the income at source, the system encourages the recipient to declare their investment income correctly.

For a taxpayer who declares the corresponding income and assets, the withholding tax is, in principle, refundable. For an individual resident in Switzerland, this is done via their tax return. For a company, the procedure depends on its circumstances and the applicable forms, but the principle remains the same: entitlement to a refund requires the transaction to be transparent to the tax authorities.

It is precisely this point that the Valais case highlights. Many people perceive withholding tax as a sort of technical, almost automatic deduction, for which a refund is automatically due once the tax has been deducted. However, the refund is not automatic. It is conditional upon compliance with reporting obligations. Where the relevant income, bank account or securities are not included in the tax return, the nature of the tax risk changes.

Le Matin points out that the law allows, under certain conditions, for the right to a refund to be retained where income has been omitted through negligence and subsequently discovered by the tax authorities. Conversely, where the omission is deemed to be intentional, the right to a refund may be forfeited. In the Valais case, the authorities and the courts have accepted this second scenario.

What SMEs need to take away from this private case

Although the case concerns a private individual, it has direct implications for Swiss SMEs. Dividends, liquidations, asset restructuring and family transfers are common occurrences in the life of companies owned by an entrepreneur, a couple or a family. When a business is sold, wound up or transferred, cash flows no longer follow the usual pattern of salaries, invoices and social security contributions. It is precisely at such times that errors in tax returns become the most costly.

An SME may be affected in several ways. Firstly, as a company distributing a dividend or undergoing liquidation. It must ensure that obligations relating to withholding tax are identified, documented and dealt with within the applicable time limits. Secondly, as an entity whose shareholders must correctly declare the income received and the shareholdings held. Finally, as a family business where the line between private assets and business assets can become blurred in the event of a death, succession or change of control.

The sensitive issue is not solely the dividend. In the case reported, three omissions occur simultaneously: the income, the newly opened bank account and the shares held. For a fiduciary, this combination is a red flag. An exceptional transaction must be reconstructed in its entirety: the origin of the funds, the legal nature of the payment, the beneficial owner, the accounts used, the securities held, the accounting entries and the supporting documents.

In practice, a tax return should not be treated as a mere exercise in copying out the certificates received. It must also take account of events during the year: the death of a partner, the sale of assets, the winding-up of a company, an unusual payment, a change of bank, or the acquisition or disposal of securities. Incorrectly classified or omitted exceptional income can carry far greater weight than an ordinary error in a standard section.

Family transactions warrant enhanced tax scrutiny

Family-owned companies present a particular risk because decisions relating to the family’s assets and business decisions are intertwined. A liquidation may be experienced as the end of a family history, a succession as a personal emergency, or a sale as a transaction that has been in the pipeline for a long time but is poorly documented for tax purposes. However, from the tax authorities’ perspective, every cash flow must be explainable and linked to a correct basis for reporting.

When a shareholder dies, the heirs may find themselves faced with documents they are unfamiliar with: articles of association, share certificates, annual accounts, dividend distribution decisions, bank statements and liquidation documents. The risk increases if the tax return is prepared without a complete overview of the file, or if information is exchanged between the solicitor, the bank, the family, the company and the trustee without clear coordination.

For an SME director, the lesson is a practical one: major events must be planned for from a tax perspective, even when they appear to be primarily private matters. Before a significant distribution, liquidation or sale, it is prudent to check the treatment of withholding tax, the documentation to be retained and how the beneficiaries will need to declare the amounts received. After the transaction, it is essential to check that certificates, bank statements, shareholdings and income are correctly recorded in the relevant tax records.

This applies equally to self-employed individuals who own a company, pensioners who have retained shareholdings, or families managing a property portfolio through a legal structure. The more unusual the transaction, the less one should rely on memory or a declaration completed in haste. A missing document may not pose an immediate problem, but could become a key issue when the tax authorities raise queries.

A strong message for trustees and taxpayers

The Valais case also highlights the significance of the concept of intent in the refund of withholding tax. It is not always sufficient to claim that one was unaware of the rules or that one was going through a difficult period. The authorities examine all the circumstances: the size of the amount, the transparency of the transaction, the consistency of the tax return and the presence or absence of income-related details.

For a trust company, this argues in favour of asking targeted questions when preparing tax returns. An annual questionnaire may explicitly ask whether there have been any dividends, sales of securities, newly opened accounts, inheritances, liquidations or extraordinary distributions. Whilst this step may seem purely administrative, it creates a useful record and obliges the client to report events that do not always appear in the usual documentation.

Le Matin reports that in Switzerland, companies pay nearly 30 billion francs in withholding tax on interest and dividends each year, of which around 24 billion is subsequently refunded to investors. The difference corresponds to unreimbursed amounts that remain in the public coffers. These figures illustrate the scale of the mechanism: for each taxpayer, the issue may be a one-off; for the tax system, it is massive.

One should not conclude from this case that any error automatically results in the loss of the refund. The outcome depends on the circumstances, the nature of the omission, the taxpayer’s conduct and the rules applicable to the specific case. But the message is clear: withholding tax rewards transparency in tax returns and severely penalises omissions deemed serious.

In an environment where business transfers, inheritances and asset restructuring are on the rise, the taxation of capital income cannot be relegated to the end of the process. For an SME, a liquidation or a distribution does not end with a bank transfer. It is only complete when the accounts, certificates and tax returns all tell the same story — at the right time and with the correct supporting documents.