Switzerland Fact-File Part 3:
Individual Business International Taxation
3.3 Switzerland Double Tax Treaties
Double Tax Treaties
Switzerland has double taxation treaties
with more than 70 other countries. Double taxation agreements
exist to protect against the risk of a person (or company)
being taxed twice, where there is liability for tax on the
same income in two different countries. As a member of the
Organization for Economic Co-operation and Development (OECD),
Switzerland tends to follow the OECD model and commentary
governing double tax treaties, albeit with occasional exceptions.
The main points of this convention are highlighted here.
Where a DTT follows the OECD model, which most – but
not all – tax treaties do, the following areas are,
inter alia, covered:
- Benefits will only be extended to residents of the contracting
states (and in a dual residence situation, there will be
rules to determine a single state of residence (which in
the case of a corporate entity, will usually be the state
in which the effective management of the entity takes place,
although sometimes this can be determined under the mutual
agreement procedure, where this exists);
- Taxes covered by the DTT will usually be income tax,
corporation tax, and capital gains tax (with indirect taxes
and inheritance and gift taxes excluded from the scope of
the agreement);
- The definition of a permanent establishment for tax residence
purposes will be given.
- Income from immovable property will usually be taxable
in the state in which said property is located, although
the other contracting state may tax the income, as long
as double taxation relief is granted.
- The tax treatment of dividends will be outlined, and
will usually be that the dividends should be taxed in the
country of which the company paying the dividends is a resident,
usually at a specified lower rate than would usually apply.
- The rules governing the taxation of interest will be
outlined, and will usually be that it should taxed in the
contracting state in which it arises, but if the beneficial
owner of the interest is a resident of the other state,
then the rate will be limited to a specified percentage
of the gross interest payment.
- The tax treatment of royalties will be outlined, and
will usually be that the taxation in the source State of
royalties paid to a resident of the other State will be
limited, with the source State retaining the ability to
tax royalties that can be attributed to a permanent establishment
of the beneficial owner in that State.
- The tax treatment of capital gains will be outlined,
and will generally (with certain exceptions, including for
gains relating to permanent establishments and gains from
international shipping or international air traffic) be
that the source state will retain the right to tax gains
from “the alienation of immovable property situated
in that State”.
- With regard to income from ‘professional services’
(such as those provided by doctors, lawyers, accountants,
engineers, etc), the rule will usually be that the source
State of such income may only tax it where it is attributable
to a fixed base there. This provision is no longer contained
in the OECD model treaty, but has been written into the
majority of Swiss treaties.
- With regard to the taxation of income from employment,
the rules outlined in the DTT will usually be that payment
in respect of employment received by an individual who is
a resident of one contracting state may be taxed only in
that state, “unless the employment is exercised in
the other contracting state”. Individuals employed
in international shipping or air traffic are the exception
here, and are usually taxed in the state in which the operator
of the ship or aircraft is resident.
- In terms of the taxation of directors’ fees, the
rules will generally be that contracting states fees paid
by companies that are resident in that State for services
performed by residents of the other contracting state in
their capacity as board members of such companies.
- With regard to the taxation of artists, entertainers
and sports-people, who are resident in one of the contracting
states and performing services in the other State, it is
stated that “income derived by a resident of one State
from his or her personal activities as an entertainer or
sportsperson exercised in the other State may be taxed in
that other State”.
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