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US-Switzerland Double Tax Protocol Now In Force

by Lorys Charalambous, Tax-News.com, Cyprus

20 September 2019


The Swiss Government on September 20, 2019, announced that it has exchanged instruments of ratification with the United States to bring into force a Protocol to their double tax agreement.

The two states signed the protocol on September 23, 2009, with a view to revising their 1996 DTA. The Swiss Federal Assembly had already approved the protocol on June 18, 2010. The Senate finally endorsed the changes in the Protocol on July 17, 2019.

Notable provisions in the protocol to the tax treaty with Switzerland, signed in 2009, include:

  • The prohibition of source-country taxation of dividends paid to a pension plan or individual retirement savings vehicle that is set up in and owned by a resident of the other country (Article I).
  • The adoption of mandatory arbitration procedures for certain cases when disputes cannot be resolved within a specific time frame (Article II).
  • The adoption of language pertaining to information exchange that largely comports with the OECD model convention but with important exceptions (Articles III-IV), as follows:
    • The two countries agree to exchange taxpayer information that "may be relevant" regarding taxes imposed by the treaty or subject to the treaty;
    • Information about third-party persons (neither US nor Swiss) may be shared between tax administrators provided the matter concerns taxes imposed by the treaty or subject to the treaty; and
    • Bank secrecy laws are prohibited from denying a request to disclose taxpayer information that "may be relevant."

Dividends to individual pension funds - Pillar 3a in Switzerland - will be exempt from withholding tax from January 1, 2020.

Switzerland said requests for information may be submitted from the date of entry into force of the Protocol, September 20, 2019. Requests for financial accounts must relate to matters which have occurred since the date of signature of the Protocol of Amendment, September 23, 2009. The FATCA agreement allows group requests for facts as of June 30, 2014.

It said the compulsory arbitration clause will ensure that double taxation is avoided even in cases where the competent authorities can not agree under Mutual Agreement Procedure talks.

TAGS: tax | FATCA | law | retirement | transfer pricing | withholding tax | Switzerland | United States | dividends | BEPS

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