Withholding tax 2021: which canton is responsible and when

Melanie Imper Senior Associate Treuhand/Corporate Support Services Switzerland, PwC Switzerland 09 Mar 2021

Circular No. 45 «Withholding tax on employees’ earned income» of the Swiss Federal Tax Administration dated 12 June 2019 repeatedly points out that employees subject to withholding tax have until 31 March of the following year to request a recalculation or retroactive ordinary assessment if they disagree with their withholding tax deductions.

The Swiss Tax Conference (SSK) published Circular No. 35 «Procedure for individuals subject to withholding tax in intercantonal relations» on 26 August 2020. It explains in detail which canton is responsible under which circumstances.

A recalculation can rectify the following situations:

  • Incorrect calculation of gross salary subject to withholding tax
  • Incorrect calculation of income determining the rate
  • Incorrect application of the tariff code

However, a retroactive ordinary assessment must be requested in order to claim additional deductions. While a retroactive ordinary assessment is only available to employees domiciled in Switzerland and those  whose tax domicile is abroad but their whole situation is still comparable to a person domiciled in Switzerland («Quasi-Ansässige»), all employees who pay withholding tax may request a recalculation. However, Circular No. 45 does not indicate the cantons in which a recalculation is effectively performed. The cantons decide whether to perform a retroactive ordinary assessment instead of a recalculation. Circular No. 35 of the SSK lists the cantons that always offer a recalculation of withholding tax in justified cases and which ones perform a retroactive ordinary assessment, i.e. all cantons. Only a few cantons perform a retroactive ordinary assessment in exceptional cases.

Settlement of withholding tax
The employer must always settle withholding tax with the entitled canton. For employees who are domiciled in Switzerland, this is the canton of residence. For employees who are domiciled abroad, it is the canton of domicile of the company, unless the employee has a canton of week stay residence. If an employee relocates, the new canton is applicable as of the following month, even if the move occurs on the first day of a month. One exception here is the switch from unlimited to limited tax liability. For example, if an employee who is a Swiss citizen relocates during the month from his previous canton of residence to a foreign country and continues to work for his employer in Switzerland, withholding tax liability begins on the first day of his domicile abroad. The effective date on which the employee moved away from his previous place of residence is relevant for every case. The withholding tax paid in the previous canton is not transferred to the new canton, provided no retroactive ordinary assessment is being performed.

Should the party liable for the settlement of withholding taxes transfer the amount to the wrong canton – for example in the event of a move between cantons – it is not automatically redirected to the correct canton. This is intended to ensure that the party liable for the settlement does not neglect their obligations.

Retroactive ordinary assessment

If an individual liable to withholding tax requests a retroactive ordinary assessment, the principle of a cut-off date is applied. This means that the last day of the year is the decisive date for determining the responsible canton. The same applies to individuals who are not yet liable for withholding tax at the beginning of the year but are liable at the end of the year – and vice versa (e.g. due to divorce or marriage). If withholding tax was already paid to another canton, this is transferred to the responsible canton and credited without interest. If an employee who is domiciled abroad and does not have a canton of weekday residence has multiple employers in Switzerland, he must request a retroactive ordinary assessment in the canton of domicile of the employer from which he receives the highest gross salary. If an employee moves to a different canton during the year, the request for a retroactive ordinary assessment must state that it is being requested for the entire year, otherwise the tax authorities may send it back. 

If the request is submitted to the wrong canton, the tax authorities will forward it to the correct canton. Once an employee has submitted a request, it cannot be withdrawn. From this time on, a new retroactive ordinary assessment must be performed every year, unless the employee is liable for withholding tax and their tax domicile is abroad.

Recalculation

In principle, all cantons offer a recalculation of withholding tax. However, the cantons of Bern, Schwyz and Zurich reserve the right to make a correction with the help of a retroactive ordinary assessment.

Unlike the retroactive ordinary assessment, which is based on a cut-off date, in a recalculation each canton is only responsible for the duration of the entitlement. Accordingly, if someone moves to a different canton during the year, both cantons may perform a recalculation. The taxpayer must be aware of this and it creates additional work. Unlike a retroactive ordinary assessment, withholding tax that has already been paid must therefore not be transferred to another canton. It is retained by the canton to which it was paid.

If a recalculation is requested in all relevant cantons and one of them then performs a retroactive ordinary assessment instead of a recalculation, it is only carried out for the corresponding period, not for the entire year. Provided the employee has not explicitly requested a retroactive ordinary assessment, there’s no obligation to repeat in subsequent years based on the decision of the canton.

Contact us

Melanie Imper

Melanie Imper

Senior Associate Treuhand/Corporate Support Services Switzerland, PwC Switzerland

Tel: +41 58 792 28 32