Interactive Brokers and Swiss tax return

[HowBy]

Hello Jerome,

Are you sure that the US dividend withheld is deducted from your Swiss tax, and not just from your taxable income?

It seems that the ACI has a choice.

CH-US Convention art. 23 para. 1 let. B

(b) Where a resident of Switzerland receives dividends which, in accordance with the provisions of Article 10 (Dividends), are taxable in the United States, Switzerland shall, subject to subparagraph (c), grant a relief to such resident upon request; such relief consists of:

(i) by the imputation of the tax paid in the United States in accordance with the provisions of Article 10 (Dividends) on the Swiss tax imposed on the income of this resident; the amount so imputation may not, however, exceed the portion of the Swiss tax, calculated before the imputation, corresponding to the income taxable in the United States, Or

(ii) in a flat-rate reduction of Swiss tax, Or

(iii) a partial exemption of the dividends in question from Swiss tax, but at least a deduction of the tax paid in the United States from the gross amount of the dividends.

  Switzerland will determine the type of relief and regulate the procedure according to Swiss requirements concerning the execution of international conventions concluded by the Confederation with a view to avoiding double taxation.

Switzerland therefore seems to be able to freely choose, for example, option (iii), the most advantageous for the tax authorities. I wonder whether each canton chooses an option or whether there is a common federal rule. Where could one find a text that officially indicates the Swiss requirements?

 

NB the USA is more generous:

2. In the case of the United States, double taxation is eliminated in the following manner: next:
In accordance with the provisions and subject to the limits provided for by the legislation of the United States (as may be amended from time to time without affecting the general principles set out herein), the United States grants residents or citizens United States as a deductible credit against United States income tax the appropriate amount of taxes paid in Switzerland…

[Jerome]

I am taxed on income based on the returns raw, i.e. before withholding tax on the dividend. Then, the withholding tax (CH withholding tax, request for reimbursement of the additional withholding tax USA and request for flat-rate imputation) are considered according to the tax software provided by my canton as withholding tax, already paid, which is subtracted from the tax to be paid during the annual taxation.

I must say that I never bothered to check on the actual tax bill whether the amount deducted, relating to this withholding tax, corresponded exactly to the deductions on dividends. The amount seemed to me to be sufficiently substantial at first glance and so I never pushed the analysis further. It must be said that these tax issues have never really interested me. I will do so during the next taxation, just to be sure.

[Sebastian]

Hello Jerome and hello everyone,

Thank you for your various messages/advice.

I am just starting my 2022 tax return and I read that you declared in one line in annex DA-1, the IB account number with the value of the net assets + the total dividends + the total withholding tax…

I admit that it's super simple because it's done in one line on DA-1 🙂 I like it!

but, in my portfolio and probably also yours, if you have US, foreign (non-US) and Swiss securities, they do not have the same withholding tax (% of tax withheld) on the IB account statement and if we wanted to "do it right" we would logically have to declare the Swiss securities in Appendix 1 "Statement of securities", the foreign securities outside in Appendix 8 "DA-1" and the US securities in Appendix 7 "R-US 164". Then declare the % of withholding tax for each security and that would recalculate the non-recoverable foreign tax (yellow box) automatically?

(in fact I did it like this in my 2021 declaration…)

But since in the end it seems to come to the same thing, I just have to "adjust" in my tax calculator (NE), the % of the non-recoverable foreign tax so that it displays in the yellow box on the right the amount of non-recoverable foreign tax = that reported in the IB statement for the year...

Does it seem coherent to you to do it like this?

I will also keep you informed if on my side (NE) the tax authorities bring things back to me or not on this method of declaring "synthetic" securities thanks to the super IB statement vs. how I had declared in 2021...

[Jerome]

Hi,

Your method seems correct to me, although more laborious.

I have been doing this for several years and I have never had any problems with my tax authorities. That being said, I imagine that it can vary from one canton to another and even from one tax collector to another... Keep us informed in any case, it is always interesting to have feedback on this subject.

In addition, I would say that from a tax point of view, even if I am not in the head of a tax official, it seems to me that passing on a single line on DA-1 the US, foreign and Swiss securities, held by a foreign broker, and therefore not taxed with Swiss withholding tax or additional withholding tax in Switzerland (USA), makes sense, since the only withholding tax corresponds to “the imputation of foreign tax deducted at source”.

[Sebastian]

Hi Jerome, thanks for your feedback. I'm going to put in any case a single line for the 2022 declaration on DA-1, we'll see if it goes through too! because I don't see myself detailing the action lines because there are now a lot (too many) 🙂

in any case, the tax authorities can check with the IB PDF that the tedious or quick method (1 line in DA-1) amounts to the same thing... especially since as you say IB is a foreign broker, and that's what I misunderstood last year... to be continued!

[Thierry]

Hello Jérôme and all the speakers,

Thanks for all your contributions on this head-scratching topic. I'm trying to untangle the ball of yarn to better understand the long term. I'll probably have a few questions about details later, but I'll start with the essentials:

I followed Jerome's great tutorial to create the IBKR tax report and fill out the tax return. There are a few points I would like to clarify; perhaps because the IB report has changed over the years?

1. I don't see a section "Net assets" in the report generated according to instructions. Only "Total Shares in CHF" and "Total" of the value in CHF for the forex balance (cash), the sum of which seems to correspond roughly to the net asset value (NAV). Have you added the "net asset value" section since the 2018 tutorial?
   a) After testing, this Net Assets section includes "Accumulated Interest" and "Accumulated Dividends" in the total (+ Cash and Shares, therefore). Accumulated Dividends corresponds, unless I am mistaken, to dividends awaiting payment (bad translation?).
   b) Are the sections “Open Positions” and especially “Forex Balances” really necessary if at all?
2. In the IBKR report customization, under "Section Configurations", the option "Hide details for positions, transactions and client fees sections?" = Yes, by default. Is this a new option that you leave on Yes, compared to the 2018 instructions, or are these details required by the tax authorities? (Or kept for security)
3. My tax software, in the DA-1 form, asks me for additional information. In point 3. "Income on the basis of which the tax rate due for the tax year (2022) is determined according to the tax return:", there is a field for the IFD and for the ICC. I assume that this is the taxable income calculated by the software. But I don't quite understand why I should enter it myself here since I'm not supposed to know the figures at this stage... What about it? Can we leave it blank? (the software doesn't complain)

Thank you for your enlightenment!

Thierry

[Jerome]

Hi,

Have you added the "net asset value" section since the 2018 tutorial?

Yes indeed, I modified the tutorial in this sense

a) After testing, this Net Assets section includes "Accumulated Interest" and "Accumulated Dividends" in the total (+ Cash and Shares, therefore). Accumulated Dividends corresponds, unless I am mistaken, to dividends awaiting payment (bad translation?).

yes these are the dividends waiting to be paid

b) Are the sections “Open Positions” and especially “Forex Balances” really necessary if at all?

I put them in the light of what is done for traditional tax statements

In the IBKR report customization, under "Section Configurations", the option "Hide details for positions, transactions and client fees sections?" = Yes, by default. Is this a new option that you leave on Yes, compared to the 2018 instructions, or are these details required by the tax authorities? (Or kept for security)

I leave it at no, for the same reasons as before.

My tax software, in the DA-1 form, asks me for additional information. In point 3. "Income on the basis of which the tax rate due for the tax year (2022) is determined according to the tax return:", there is a field for the IFD and for the ICC. I assume that this is the taxable income calculated by the software. But I don't quite understand why I should enter it myself here since I'm not supposed to know the figures at this stage... What about it? Can we leave it blank? (the software doesn't complain)

I don't have this on VStax. I have a section to fill in for deductions on cantonal and municipal tax (point 5) and point 6, for federal tax is grayed out ("established by the tax authority").

A++

[Thierry]

Hi Jerome,

Thank you very much for your answers, always so promptly! 🙂

I will come back with some detailed questions as soon as I find a moment... and also for all the questions that I note down as I go along on other subjects but that I never take the time to ask...

Have a nice day, see you soon

 

 

[Thierry]

Hello everyone,

Ahahaha, I just realized why we have trouble understanding each other and what adds to the fog of an already thorny subject: we don't have the same information in front of us!

In all my naivety, I thought that 1) the R-US 164 and DA-1 forms were standardized at the Confederation level and that 2) the interface for filling out the tax return, although customized to the particularities of the cantons, was also standardized. Not at all!
And to think that it is precisely our taxes that finance this kind of inefficiency. How sad…

Brief…
I was referring to point 3 on page 2 of the DA-1 form on the Confederation website:
https://www.estv.admin.ch/dam/estv/fr/dokumente/dbst/formulare/2022/da-1-2022.pdf.download.pdf/da-1-2022.pdf

There is also a point 4: "Have you paid any interest?" which I have not found an equivalent for in VSTax.

Thierry

[Jerome]

Hi,

But why are you bothering with this form?

[Thierry]

Why is there a difference between foreign withholding tax on US dividends, and additional US withholding tax, withholding tax, but only by a Swiss depository (which excludes IB)?
Does money smell different depending on whether it comes from Switzerland or elsewhere?

These 2 links seem to provide a (part of the) answer:
https://finpension.ch/fr/retenue-dimpot-supplementaire-usa/
https://www.estv.admin.ch/dam/estv/fr/dokumente/dbst/formulare/2022/da-1-2022.pdf.download.pdf/da-1-2022.pdf

According to my understanding (I paraphrase), this particularity results from the double taxation agreement between the USA and CH. The withholding tax in the USA is generally 30%. According to the agreement, it is only 15% when it comes to a Swiss taxpayer (I am simplifying) => recoverable via declaration + imputation request.
There additional USA retention performed by a Swiss intermediary serves to create a pledge to encourage correct declaration in Switzerland (15% at source may be < than the total tax). This deduction is fully recoverable via the declaration in all circumstances (like withholding tax). While the imputation is not fully recoverable in all cases (see the example in link 2, although it deals with a non-US case).
Corollary: the fact that IB does not collect the additional US withholding tax for Swiss taxpayers likely creates a small back door for tax evasion.
Now, why is the convention with the USA 15% + 15% instead of the total amount collected at source and then imputable as for European countries for example? Probably geo-eco-politico-diplomatic reasons?
But above all... why in 2020+, two countries like the USA and CH can't create an automated system to exchange the necessary information and "definitively" resolve this problem? Crazy, right?

Thierry

[Thierry]

But why are you bothering with this form?

Hi,

So it depends what you mean by “this form”.
Fortunately, I do not fill out this form directly. The declaration via the software clarifies the procedure and fills in the form fields automatically when the declaration is generated (form which remains different between VS, NE, VD, etc.). However, the questions on page 2 all appear under the "additional information" part of the "DA-1" section of my tax software (not seen on VStax).

If on the other hand you ask why I bother with these tax "details", it is to satisfy my curiosity and my desire to better understand the subject. 😉
…and possibly get some peanuts that I'm entitled to.

[Jerome]

Ah ok, I understand better, it comes directly from your software. Indeed not this problem on VStax.

So next question, why not go via VStax?

The additional US withholding tax made by a Swiss intermediary is used to create a pledge to encourage a correct declaration in Switzerland (15% at source can be < than the total tax). This withholding tax is fully recoverable via the declaration in all circumstances (like withholding tax). While the imputation is not fully recoverable in all cases (see the example in link 2, although it deals with a non-US case).

Still on VStax, the withholding tax, the additional USA withholding tax and the flat-rate imputation, as I have already mentioned on this topic, are treated identically and are deducted from the tax to be paid.

[Thierry]

I am not from Valais. 🙂

I use the official software of my canton (VD). I installed VStax just to see what you were talking about. Overall it is similar even if the interface is very different, that this additional information is requested and R-US 164 and DA-1 are separated although under the same section.

About the imputation, it is also treated as an advance tax for my case. But it seems that it depends on the situation (and maybe the taxer). See my 2 links above. Sorry the 2nd is not the right one. I will update later (I don't see an edit button though).

So no problem per se. I was just wondering if anyone knew if it was necessary/useful to fill in points 3 and 4 (and what influence this information has).

Thank you and see you soon,

Good day.

 

 

• This reply was modified 1 year, 7 months ago by Thierry.

[Jerome]

Ok, I understand better 🙂

You don't normally have the option to edit posts. You can send the new link in a future reply.

A++

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