Partial Mistake from tax office

Finance, Taxes, Banking, Insurance and Retirement
1
Hi,

IN SHORT: 2 years ago I left the country officially while still being payed by my employer. The company I worked for, payed all the due withhold taxes but the tax office is ignoring the withhold taxes for the period I left the country. ... while still considering the full income....so I have to pay again the "missing", according to their calculation, withhold tax.

A BIT MORE DETAILS:

In 2021 my company payed me for 7 months.

As the last 3 months they put me on garden leave, I left Swizerland the 23rd of June.

I came back in CH in 2022 and last week I received a letter for the tax adjustment of 2021 where I had to pay a considerable amount, much higher than 2020.

Tax office notices they made a mistake concerning the withhold tax. The admit they ignored June by mistake.

Problem: since I left the country the 23rd of June, they ignored the withhold tax for July. But apparently they keep considering the full income of 7 months.....so they are asking me to pay an amount of money which corresponds to the withhold tax my company payed in 2021.

What I find strange is that since their first email , the approach was quite restrictive:

They partially admit the error , stating that they will consider June (but not July) and...

"...If you do not agree with the content of the final invoice, you must raise your objection by post. An objection via email cannot be entered into. We will book the month of June 2021 and you will receive a confirmation by post with the account statement."

In a second message, after telling them that my employer already payed for the month of July they gave me a bit more info:

"Only the period of residence can be included in the subsequent regular assessment. I.e. in your case 01/01/2021-06/23/2021. The withholding tax is final for the month of July. If you do not agree with the final statement, we refer you to the legal remedies in accordance with the assessment order"..

and here they copy paste the following instructions

(translated with google)

"Legal remedies

You can object to the assessment orders and the final statements in writing within 30 days of their opening.

Justify the objection and provide any evidence. The objection must be signed and submitted by post to the responsible

assessment region (region according to the sender) of the tax administration of the Canton of Bern or online via BE-Login.

If the objection is directed against a discretionary assessment, you must submit a completed tax return or otherwise all

the information necessary for a correct assessment within the objection period."

I will contact my tax adviser but I preferred to share this with you, and get your opinion ab out how you would move forward and share experiences.

I clearly payed my taxes....but they are ignoring that fact.....

I wonder if I can just send a letter with the same explanation I give them in my email or it is better to hire a lawyer directly for that.

In addition to , that, if I send a letter, are the going to be open to discuss or I have only one shot/letter available.......

Thanks

2
Did you de-register from the town hall when you moved away ?

When did you really 'leave' the country ?

Have you declared and paid the correct taxes in the country where you were living in July 2021?

How the withholding taxes and other things are handled will depend I think also on what country you were paying taxes to in july 2021. Assuming that you did actually deregister end of June 2021.

And yes, they will not allow you to object via email - you need to send a letter to say that you are objecting and would like to be given a period of time to work out the legal requirements and to prepare the correct documentation with your lawyer/tax advisor.

You need to read/understand how withholding taxes work - they are clearly not the same as the regular taxes/deductions paid 'at source' by temporary workers, or 'with the tax return'....

3

The de-registration happened gradually:

1- I notified the city hall that I was leaving the country in June as I was looking for a new job abroad.

2- I returned the B permit to the Swiss embassy abroad in August....when I was sure my job was actually something real . Otherwise I would just came back to CH to enjoy my RAV(which I did not use even for a single day!!)

The last action resulted in a document from °Polizeiinspektorat der Stadt Bern°

Stating :

Abmeldebestätigung :

Wegzugsdatum 23.06.2021

Abmeldedatum 04.08.2021

No idea why the tax office considered the 23.06 as a deregistration date. That could be an additional mistake.

Actually I have to thank you because your message helped me to retrieve some info I totally forgot about!

I kept it very simple:

- I declared abroad(from July '21) the income from the company abroad.

- I declared all the CH income in CH . From Jan till July.

So yes, the overlap in July could be a matter of confusion

Anyway your question should be irrelevant from a CH point of view. My salary in July came from a Swiss company taxed at the source. The taxes are already in their pocket

The tax office is considering my full income of 7 months but they are not considering the withhold tax payed in July.

That's the problem.

So I will try to email the tax office with the info above and see how they react, even of their position seems quite closed already.

4
So there's definitely issue there, you said you left Switzerland but at the same time you didn't inform your Employer so they did what they should, kept your Swiss employment, so in the end you've worked 7 months in Switzerland becoming a Swiss tax resident for the whole year (unless the DTA says otherwise). However your departure triggered a "system error" as you can't work here on a local work contract and local permit and not live here at the same time...

good luck, I'm curious how it'll end

5
I didn't know that. Anyway all the taxes were payed so from a taxation point of view, that it. Anyway I understand that could cause some conflicts....indeed.

Please note that I left in June. I could have been on holiday. I returned my B permit in August. And all this was somehow planned to avoid issues/confusion

ehmm... yes, that is also a good point. That was also my previous understanding about the yearly taxation but my tax adviser told me that I should have declared just what I earned in CH.

In 2020, for example I worked the last 10 months in CH and I declared those 10 months in CH. The remaining 2 months were declared abroad.

Also note that the tax office is not challenging that yearly aspect (yet..). The are clearing telling me that I am taxable until June SO they are ignoring July....but they only ignore the withhold amount of July....not the income! I will probably send an email to clarify that.

6
For the tax office you only left in august when you returned the permit. You could have come back as you still had a valid permit.

7
When you leave the country in the middle of the year, the tax office extrapolates your income to 12 months to calculate the tax rate and then applies said rate to your effe give income. Is this what is happening?

You can do the same with deductions to mitigate the effect a bit.

If you were made redundant and did not work the rest of the year you can also plead a different treatment but it's really up to them as the rules are clear for them.

8
*(should read "effective")

This is exactly what happened to us when we moved overseas for employment. Unfortunately the timing was not flexible and we could not leave towards the end of the year.

We visited the tax office prior to leaving and we were quite shocked.

9
Why shocked?

Tom

10
I am not sure I got your point.

Sorry to repeat myself but perhaps rephrasing could help:

I worked for 7 month Jan to July -in CH- and this is what they say:

"Only the period of residence can be included in the subsequent regular assessment. I.e. in your case 01/01/2021-06/23/2021."

so, besides the end date being questionable because I returned my B permit in August, to me it is quite clear that they should ignore my salary in July from the yearly income generated in CH . At the moment they are not doing that, and that should be the problem. I can clearly see the calculations based on a 7 month salary because the amount I see in the yearly summary document sent by switch employer (7 months) is the same I see in the tax breakdown.

At the same time they ignore the withhold tax payed by my employer in July ...

In addition to that, If they consider only the time frame 01/01/2021-06/23/2021 Ideally they should give me back/deduce the withhold tax of July that was payed by my employer so I can use it to pay the taxes abroad.

Anyway , I will try to get further clarifications because the calculation are clearly inconsistent. ....unless I miss something.

11
You don't have to be a Swiss resident to be a subject for Swiss taxes. For example, cross border workers are subject to Quellensteuer, even though they reside abroad - the location of the employer also matters.

12

You should have an annual salary certificate from your Swiss job, so check the numbers (as well as you should have the pay slips for all months). Make sure your employer really paid the withholding tax. I don't even know how to check if an employer really paid it or not, they could have deducted it, but then the payment came back because you had already deregistered from the municipality, however they had to deduce it because you told them you have B permit (and I guess you also didn't inform them about your change of address), so who knows where's the money now...

BTW, if you had changed your permit to a G-permit and notified the employer accordingly, everything would have been fine, as they would have withheld tax at source according to the employer's address.

13
And in that case, the employer might have provided two different salary certificates. One for the period of residence and another one after moving abroad.

Because I cannot imagine how with only certificate the tax office could understand how much you earned as a resident - it doesn't have any monthly breakdown and a total income.

14

He was taxed as resident for the entire 7 months because he kept B permit. The salary certificate shows the amount of the tax withheld.

The tax at source is a PITA patch to the Swiss tax system. It's not designed to nicely fit in all situations, it's designed to make sure no foreigner dodge the system and flee Swiss borders without paying the tax. For example when you change cantons as a Swiss citizen the former one gives back to you directly all prepaid tax and the new canton just asks you to prepay the tax according to your annual income, everything is smooth that way as the new canton doesn't have to trace your tax history. With withheld tax, on principle, they can't pay it back to you, only the overpaid balance after closing the tax year.

I bet the tax withheld from OPs June salary has fallen through the cracks, it's booked somewhere but not at the very end, i.e. a municipality. I'm curious how to "un-stack" it, and whether it's feasible. Engaging lawyers to get it out from the cracks of withholding tax rules might cost more than it's worth.

15
Your statement is something I have to clarify with the tax office but at the moment, according to what the tax office operator said , this is their logic:

"Only the period of residence can be included in the subsequent regular assessment. I.e. in your case 01/01/2021-06/23/2021."

but then the should fully ignore July's payslip.....while they are only ignoring the payment of July's withhold tax so far.

The annual salary summary sent by the employer is clear. The full income of 7 months is used in the tax breakdown letter.

I also have all the pay slip.

I am quite sure they messed up something on multiple aspects.

They already admitted that they missed to consider the withhold tax of June and they are going to adjust the calculation for June.

They should do the same for July....but the residence comes into play to add confusion. (actually it isn't considering their statement above)

What is really frustrating is that if I follow their logic, they already got MORE money than they should (July withhold tax).....and they are still asking for more (income tax for July)....and let's keep in mind that the last payslip was quite juicy....as it is worth almost 2 / 3 times a regular payslip

16
There is a clear conflict here- it is significant whether the tax office considered you a 'resident for tax purposes' until end of June or until end July.

I actually think it's the latter - you may have been on holiday to end of August but that is when you officially de-registered.

In that case, quellensteuer (assuming your employer was deducting tax-at-source) should have been paid to end of August by your employer.

Withholding tax is relevant (and yes, it's usually higher than quellensteuer) because the tax office accepts that your exit date is end of June.

In fact, I think you 'told' them (the employer) you went out of the tax system in end of June...because your employer paid withholding tax instead of tax-at-source for the salary in July

So in July, you were tax resident to the other country - wherever you ended up - and you have to declare the income and tax paid in Switzerland to that country instead. They are not 'ignoring' that you paid the tax.

The normal tax-at-source and tax return is applied to Switzerland, to end of June.

The withholding tax is paid and is literally 'held' and you declare this income and what was withheld to whatever country you were living in for tax purposes in July.

The handling of withholding tax depends very much on the country where you were living for tax purposes in July.

Then you have to do a tax declaration with that country (which you have not stated) and that is where you must sort this out....

Your taxes due and bills etc from Switzerland then should cover only to end of June. And the withholding tax is only relevant when you put in tax return for the country where you were living in July.

Ok ?

So the big question - where were you living for tax purposes in July 2022 ?

OR

Your employer stuffed up by paying it as withholding tax instead of reqular tax-at-source, because you told them you were no longer living in Switzerland during July. Whose decision was it to declare you as 'left the country' at end of June ?

Your employer knew you had left the country, so they switched from tax-at-source to withholding tax. But you failed to de-register until August, so the tax office considers you a tax resident until end July.

Which way is it ? What do you want - them to close the tax book end of June or end of July ? Then it's clear how this needs to be sorted out (and no, having them move withholding tax to tax-at-source is not the solution - they are two quite separate tax functions/offices/accounts.

17
O.k. lets try to unravel this mess and put some sense and logic in it. Because right now I am not sure what has happened. Or I do partially. To make things simpler let us use full months, and also for simplicity assume your income was CHF 6k gross.

You worked from January to April.

You were on garden leave an got paid May to July.

You were out of Switzerland July - December.

You announced your departure end of June

You only fully deregistered in August.

You paid tax at source for January - July on 6k per month.

You did a retrospective ordinary tax declaration (known as NOV) for this year.

Here how IMHO it should be done.

Scenario # 1 Assuming tax residency ended end of June.

Taxable income is 6 x 6k minus social deductions and all other deductions.

Taxable rate determining income is twice (×12/6) the above.

From the tax owed, tax at source paid in January to June has to be taken into account.

Tax at source for July has to be rectified using double taxation treaty process (if there is any).

Scenario # 2 assuming tax residency ended end of July.

Taxable income is 7 x 6k minus social deductions and all other deductions.

Taxable rate determining income is ×12/7 the above.

From the tax owed, tax at source paid in January to July has to be taken into account.

The difference between Scenario #1 and # 2 are minimal. Depending on circumstances either could be better.

Now how it should not be done.

Scenario # 3 Assuming tax residency ended end of June.

Taxable income is 7 x 6k minus social deductions and all other deductions.

Taxable rate determining income is (×12/6) or (×12/7) the above. From the tax owed, tax paid in January to June is taken into account, but not July

Tax at source for July has to be rectified using double taxation treaty process (if there is any).

If I understand you correctly you find yourself in scenario #3. Clearly IMHO, if the income of July is subject to NOV, then also the tax at source paid in this month must be credited and taken into account. Otherwise the income is taxed twice. Once by NOV and once by tax at source.

Question, who made what mistake?

Which amount did you fill in, in the tax return as income? The 6 month salary or the 7 month salary?

Do you have different official salary statements (Lohnausweis) for your period as a tax resident and your period you were not a tax resident?

18

Remember you can't exist in Switzerland without an address. When changing places you have 14 days to register in the new municipality, but you'd state the date of moving when registering so there's no gap and all taxes are sorted out. The employer would apply a tax correction on the following month when the taxes differ after changing places.

You've announced leaving Switzerland at the municipality so that's when your obligation to withholding tax ended, and so the taxman is right as you were subject to tax at source at 01/01/2021-06/23/2021.

Informing employer of permit/residence and other tax relevant changes is your responsibility. You didn't inform them so they acted accordingly to the information they had deducing the tax at source.

Just speculating, I guess your only hope is to sort this out with the employer retroactively. However I have no idea how your employment in June/July would be accounted for then. They can't treat you as a Swiss resident, nor as cross border commuter because you didn't have G permit. Was it even legal to keep your B permit when you definitely left Switzerland? In the end they might need to retroactively terminate your employment at 23/06/2021 because at that point you invalidated the terms of employment so you'd have to pay back the salary and that'd fix your tax bill...

19

You've made a point. Since the OP announced leaving Switzerland in June the tax obligation ended. Further relationship with the employer should have been carried on a different contract, perhaps not paying any Swiss deduction nor taxes, just a withholding tax (not to confuse with Swiss tax-at-source) which would be transferred to the foreign tax authority. However OP failed to inform the employer, nor negotiate a new relationship for July. His employment was carried over as with Swiss resident, so that's why the whole 7 months are in the Swiss salary certificate. Now those two things don't match, carrying a job in Switzerland as a Swiss resident and no longer being a Swiss resident since July. I don't think the employer takes any responsibility for employing such employee, but I don't think there's any criminal offense made by the employee... just a penalty in the taxes as we see so far

20

That’s utter bullshit, impossible, and also not really relevant. First you have to remember that there are different kinds of residency, whit various definitions depending on law and circumstances. Therefore one might be a civil resident but not a tax resident. But in any account, it must be applied consistently. Tax office cannot say we tax all of your income (even beyond tax resident status), but we do not credit all withholding tax paid for this income. But as said, whoever made the tax declaration might have done a mistake and declared the wrong income.

No. A different contract is not needed. The old, original agreement, was still good and valid.

It’s still tax at source, not withholding tax. Withholding tax is for interest, dividends, pensions, and such.
https://www.zh.ch/de/steuern-finanze…zstb-87-1.html
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