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Switzerland Eyes New Cross-Border Tax Deal With Italy

by Ulrika Lomas, Tax-News.com, Brussels

03 March 2014


Swiss Finance Minister Eveline Widmer-Schlumpf has pledged to re-negotiate the bilateral cross-border tax agreement with Italy, to ensure that the provisions are more favorable to the Swiss canton of Ticino in future.

The Finance Minister's announcement followed talks with the Ticino Government, which focussed on ways to resolve the dispute over the taxation of cross-border Italian workers. Ticino submitted a cantonal initiative on February 2, urging the Federal Assembly to annul the existing deal to allow negotiations on a fresh agreement to begin.

Fiscal relations between Italy and Switzerland are governed by a double tax convention covering taxes on income and wealth, which was negotiated in 1976, and finally entered into force in 1979, and also a double tax agreement for cross-border workers, which became effective on January 1, 1974.

The latter provides that cross-border Italian workers employed in Switzerland are exempt from taxation in Italy. In return, Switzerland is required to transfer 38.8 percent of the fiscal revenue collected from these cross-border workers to the Italian Government.

In the cantonal initiative, the Ticino Government argues that this agreement is having a negative impact on the labor market in Swiss cross-border regions, as the extra supply of Italian workers is bringing down wage levels for Swiss workers, termed by Ticino as "wage dumping." With lower rates of taxation in Switzerland, many Italian workers are seeking work across the border in Switzerland, the Ticino Government said.

Ticino said the amount of tax being transferred to the Italian Government has reached an "astronomical" level, of almost CHF60m (USD68m) annually.

Terminating the cross-border agreement with Italy will, however, mean that the other double taxation agreement, on income and wealth, will also be rescinded, under article 6 of the agreement.

TAGS: Finance | tax | double tax agreement (DTA) | law | employees | agreements | Italy | Switzerland | individual income tax

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