Switzerland and the USA sign revised double taxation agreement

(Last modification 24.09.2009)

Bern, 23.09.2009 - Switzerland and the USA today signed a protocol in Washington amending the double taxation agreement (DTA) in the area of taxes on income. In addition to other changes, the Protocol of Amendment also contains provisions on the exchange of information in accordance with the OECD standard. Those provisions were negotiated in line with parameters defined by the Federal Council. Any request for administrative assistance must clearly identify the taxable person concerned and, in the case of banking information, the bank concerned. As has been the case with past DTAs, so-called ‘fishing expeditions’ are not permissible. These provisions are not applicable retroactively: In terms of the exchange of banking information, the effective date is today, the day of the signing.

In addition to the extension of administrative assistance, the negotiations with the USA were also used as an opportunity to amend the arbitration board clause in the existing DTA and replace it with a formulation that corresponds in substance to that in the OECD model convention. It was also agreed to exempt dividends from taxation paid out by restricted pension organisations (in Switzerland: pillar 3A) in the source country. To date only dividends paid to occupational pension organisations (pension funds) have been exempted from withholding tax. In a separate agreement to the Protocol of Amendment, Switzerland and the USA agreed to conduct further negotiations within the next two years on the revision of the existing DTA, particularly on the reduction of withholding tax on certain equity dividends to zero percent. (introduction of zero rate).

Following the conclusion of the negotiations, a report on the Protocol of Amendment was submitted to the cantons and the business associations concerned for comments. The Conference of Cantonal Directors of Finance welcomed the signing of the revised agreement. In addition to the agreement with the USA, Switzerland has signed a DTA containing the extended administrative assistance clause in accordance with Art. 26 of the OECD Model Convention with Denmark, Luxembourg, France, Norway, Austria, the UK, Mexico and Finland since the Federal Council decision of 13 March 2009. An agreement has also been signed on the extension of the DTA with Denmark to include the Faroe Islands. The agreement with Spain is also considered to have been signed. The DTA with Spain contains an automatic most-favoured nation clause which is activated if Switzerland agrees a further reaching provision with another EU state. This clause was activated with the signing of the DTA with Denmark on 21 August 2009.

To date, Switzerland has negotiated DTAs containing an extended administrative assistance clause in accordance with Art. 26 of the OECD Model Convention with fifteen states and territories. Along with the agreements already signed, there are agreements with Japan, the Netherlands, Poland, Qatar and Singapore. These DTAs have been initialled, but not yet signed. The Federal Council has also given the go-ahead for the signing of the DTA with Qatar. The remaining initialled DTAs will shortly be submitted to the Federal Council to be approved for signing.

Stages before entry into force

Initialling is defined as the approval of a contractual text by appending initials. In this way, negotiators can provisionally draw up the negotiated contractual text of DTAs (and other agreements based on international law). The initialled text is confidential at first. The cantons and the business associations concerned are notified of the content in a brief report and invited to submit their comments. In the case of negotiations, specialist representatives from the cantons may also take part.

The agreement is published only after it has been signed. The Federal Council authorises the signing of the agreement. The FDF will then prepare a dispatch for the parliament, which is responsible for approving (ratifying) the DTA. If the partner state has also approved the agreement, it may go into effect. The date of entry into force depends on the agreement concerned. The provisions in the DTA apply in accordance with the rules adopted in the agreement, normally from 1 January of the calendar year following the date of entry into force.

Under the current practice, DTAs that provide for significant additional obligations are subject to an optional referendum. In the view of the Federal Council, the first double taxation agreement with the new administrative assistance provisions approved by parliament should therefore be subject to an optional referendum. However, the final decision as to whether or not a double taxation agreement should be subject to an optional referendum rests with the parliament, as has been the case up to now.

Address for enquiries

Eric Hess, Deputy Head, International Division, Federal Tax Administration, tel. 031 322 76 70 (information in Switzerland);
Suzanne Zweizig, Communications Manager, Swiss Embassy in Washington, tel. 202 745 7920 (information in the USA)