Double Taxation Treaties and OECD Rules in Switzerland
Switzerland maintains a vast network of double taxation treaties (DTTs) with more than 100 countries, aligning with OECD guidelines while preserving certain specificities of its attractive tax system. These treaties aim to eliminate double taxation of income and assets, while preventing international tax evasion. In the current context of increased tax transparency and OECD BEPS initiatives, a thorough understanding of Swiss treaty mechanisms represents a considerable asset for international taxpayers. PBM Avocats advises individuals and companies in Geneva and Lausanne on treaty matters.
Key Swiss DTTs: Reduced Withholding Tax Rates
| Partner Country | Dividends (ordinary) | Dividends (qualifying) | Interest | Royalties |
|---|---|---|---|---|
| Germany | 15% | 5% (≥10%) | 0% | 0% |
| France | 15% | 5% (≥10%) | 0% | 0% |
| United States | 15% | 5% (≥10%) | 0% | 0% |
| United Kingdom | 15% | 5% (≥10%) | 0% | 0% |
| Netherlands | 15% | 0% (≥25%) | 0% | 0% |
| Italy | 15% | 10% (≥10%) | 12.5% | 5% |
| Singapore | 10% | 5% (≥10%) | 5% | 5% |
| UAE | 5% | 0% (≥10%) | 0% | 0% |
| China | 10% | 10% | 10% | 9% |
| Swiss domestic rate (no DTT) | 35% (anticipatory tax) | 35% | Variable | 0% (generally) |
These rates are indicative and may vary according to the version of the applicable DTT and specific conditions. Consult the applicable treaty for exact qualifying participation thresholds.
Methods of Eliminating Double Taxation
| Method | Principle | Application in Switzerland |
|---|---|---|
| Exemption with progression | Foreign income exempt but considered for rate calculation | Primary Swiss method |
| Tax credit (imputation) | Foreign tax deducted from Swiss tax due | For dividends, interest, royalties in some DTTs |
| Lump-sum flat rate | Fixed credit without proof of foreign tax | Provided for in certain cantonal laws |
The BEPS Initiative and the Multilateral Instrument (MLI)
Switzerland has signed the OECD's Multilateral Instrument (MLI), which modifies many DTTs simultaneously. The main anti-avoidance measures include:
- Principal Purpose Test (PPT): denial of treaty benefits if tax avoidance is one of the main purposes
- Anti-abuse clauses (LOB): limitation on Benefits for certain structures
- Dispute resolution: mandatory arbitration in certain cases
- Permanent establishment: revised definition to combat artificial avoidance of PE status
What method does Switzerland use to eliminate double taxation?
Switzerland primarily uses the exemption method with progression: income taxed in the source state is exempt from tax in Switzerland, but taken into account to determine the tax rate applicable to other Swiss income. Some conventions provide for the credit method (tax credit), particularly for dividends, interest and royalties.
What is the withholding tax rate on dividends paid from Switzerland?
Swiss anticipatory tax on dividends is 35%. Thanks to double taxation treaties, this rate can be reduced: to 15% for ordinary participations, to 0-5% for qualifying participations (generally ≥10% of capital). The refund of the excess is made via an application to the FTA within the deadlines provided by the applicable treaty.
How do I know if Switzerland has a double taxation treaty with a specific country?
Switzerland has concluded more than 100 DTTs. The complete list is published by the Federal Tax Administration (FTA) on its official website. For each country, the treaty specifies the specific taxation rules. In the absence of a DTT, Swiss domestic law applies, with no conventional mechanism to eliminate double taxation.
What is the Principal Purpose Test (PPT) and how does it affect Swiss DTTs?
The PPT (Principal Purpose Test), introduced by the OECD's Multilateral Instrument (MLI), allows treaty benefits to be denied if one of the main purposes of an arrangement is to obtain those benefits. Switzerland has incorporated the MLI into its DTTs, rendering ineffective structures whose main purpose is tax. Structures must now be based on genuine economic motivations.