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UK And Switzerland Sign Updated Tax Treaty

by Robert Lee, Tax-News.com, London

02 July 2007


A protocol to the double taxation convention between the United Kingdom and Switzerland was signed in London on 26 June 2007 by the UK's Paymaster General Dawn Primarolo (pictured) and Alexis P. Lautenberg, the Swiss Ambassador to the UK.

The protocol will make some amendments to the existing double taxation convention, dated 8 December 1977. The main amendments are the elimination of taxation at source on dividends, where the beneficial owner of the dividends has a substantial participation in the payer or is a pension scheme.

The protocol also amends the exchange of information article. It provides that, in future, information will be exchanged in cases of tax fraud or the like, and in cases involving holding companies.

Measures are also contained in the new protocol relating to pensions. In future, lump sum payments may be taxed only by the state in which they arise. Also, pension contributions paid to a scheme recognised for tax purposes in one country may, under certain conditions, be deductible in the other country.

The convention and the protocol will enter into force once both countries have completed their legislative procedures. In the United Kingdom the provisions will take effect from 1 April (for corporation tax purposes), and from 6 April (for income tax and capital gains tax purposes) in the calendar year following the date of entry into force. In Switzerland, the provisions will take effect from 1 January in the calendar year following the date of entry into force.

Primarolo also signed a new comprehensive double taxation convention between the UK and the Faroe Islands, which means that the UK once again has double taxation conventions with all its maritime neighbours (the previous Convention was terminated with effect from 1 January 1998).

Among the features agreed are dividend withholding rates of 5% for companies with a direct holding of at least 10% of the capital of the company paying the dividends and 15% for all other cases. Interest and royalties will be taxed only in the state of residence of the recipient.

Double Taxation Conventions aim to eliminate the double taxation of income or gains arising in one state and paid to residents of another state.

The UK has a large tax treaty network covering more than 100 countries.


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