International taxation addresses tax questions that arise when a natural or legal person is in a relationship with more than one state: income from foreign sources, domicile in several countries, multinational group structures, double taxation treaties (DTTs), exchange of tax information and transfer pricing. Switzerland, with its network of over one hundred DTTs and its commitment to OECD standards, occupies a central place in this domain. PBM Avocats accompanies high net worth individuals, expatriates and international groups in Geneva and Lausanne in all their international tax matters.
Double Taxation Treaties (DTTs): Principles and Application
Switzerland has concluded an extensive network of double taxation treaties covering over one hundred states. These bilateral treaties — based for the most part on the OECD Model Tax Convention — aim to eliminate double taxation that may affect the same taxpayer in two states and to prevent tax evasion. They allocate the right to tax between contracting states according to types of income: employment income, dividends, interest, royalties, capital gains, property income, pensions, etc.
In practice, DTTs may provide either for exemption in the source state (with inclusion for rate purposes in the state of residence, exemption method) or for a tax credit (crediting of the tax levied abroad against the tax due in Switzerland, credit method). Switzerland generally uses the exemption method in its DTTs, meaning that foreign-source income may be exempt from Swiss tax but is taken into account for determining the applicable rate on income taxable in Switzerland (overall progression).
PBM Avocats analyses the implications of the relevant DTTs for its clients' situations: qualification of income, determination of the state of residence in case of dual residence, benefit of non-discrimination clauses, recourse to mutual agreement procedures in case of conflict between tax administrations.
Automatic Exchange of Information (AEOI/CRS) and FATCA
The automatic exchange of information (AEOI) based on the OECD's Common Reporting Standard (CRS) has radically transformed the international tax landscape since 2017. Swiss financial institutions transmit annually to the FTA the account data of natural or legal persons who are tax residents in partner states. The FTA redistributes this information to the tax authorities of the countries concerned — and receives equivalent information on accounts held abroad by Swiss tax residents.
In parallel, the FATCA (Foreign Account Tax Compliance Act) agreement concluded between Switzerland and the United States requires Swiss financial institutions to report to the US tax authorities (IRS) the accounts held by "US persons" (US citizens, US tax residents, green card holders). Switzerland applies FATCA Model 2 (direct reporting by the financial institution), subject to applicable Swiss law. PBM Avocats advises US persons established in Switzerland on their US and Swiss reporting obligations.
BEPS, OECD Minimum Tax and Group Profit Taxation
The OECD/G20 BEPS (Base Erosion and Profit Shifting) project aims to combat aggressive tax optimisation strategies of multinational companies. Switzerland has implemented the priority BEPS actions, notably via the TRAF (2020) for Action 5 (harmful tax practices) and via the Multilateral Convention (MLI) for Actions 6 (prevention of treaty abuse) and 7 (permanent establishments).
The OECD Pillar 2 (global minimum tax of 15% for large multinational groups with consolidated turnover exceeding EUR 750 million) has been transposed into Swiss law by constitutional means and is applicable to financial years beginning from 1 January 2024. Switzerland has chosen to introduce a Qualified Domestic Minimum Top-up Tax (QDMTT) to collect itself the difference between the tax effectively paid by a Swiss entity and the minimum rate of 15%, thus preventing this top-up tax from being collected by a foreign state.
Transfer Pricing and Tax Residence of Expatriates
For multinational groups, transfer pricing documentation is essential to justify the conditions of intra-group transactions. Switzerland does not have a specific law requiring the preparation of a transfer pricing file (as is the case in Germany, France or the United Kingdom), but Swiss tax authorities rely on the OECD Guidelines as a reference. Advance pricing agreements (APAs) may be negotiated with tax authorities to secure in advance the treatment of complex transactions.
For expatriates and mobile persons, the determination of tax residence and the management of dual liability risks are major issues. PBM Avocats accompanies natural persons who establish themselves in Switzerland (from abroad) or who leave Switzerland to establish themselves abroad, by analysing the tax consequences of the change of residence, the reporting obligations in the two states concerned and the coordination mechanisms provided by the applicable DTT.
Frequently Asked Questions on International Taxation
How does the Automatic Exchange of Information (AEOI/CRS) involving Switzerland work?
The Automatic Exchange of Information (AEOI) is based on the Common Reporting Standard (CRS) developed by the OECD and implemented in Switzerland by the Federal Act on the International Automatic Exchange of Information in Tax Matters (AEOIA). Since 2017, Swiss financial institutions (banks, insurers, custodians) annually collect and transmit to the Federal Tax Administration (FTA) information relating to accounts of persons who are tax residents in partner states. The FTA transmits this information to the tax authorities of partner states — and reciprocally for accounts of Swiss tax residents held abroad. Switzerland exchanges with more than one hundred partner states. The information transmitted includes the holder's identity, account balances, investment income and proceeds from the disposal of securities.
What is tax residence and how is it determined in the event of a conflict between two states?
Tax residence is the main criterion for liability to worldwide income tax. In Swiss law, tax residence is determined according to the criteria of domicile (intention to settle permanently) or sojourn (art. 3 DFTA). When a person may be considered a tax resident of two states simultaneously (dual residence), double taxation treaties (DTTs) provide successive tie-breaking criteria: permanent home, centre of vital interests, habitual abode, nationality. These criteria are applied in order until residence is attributed to a single state. PBM Avocats analyses dual residence situations and advises clients on the steps to take to clarify their tax residence.
Has Switzerland adopted the OECD's BEPS measures?
Yes. Switzerland has committed to implementing the recommendations of the OECD's BEPS (Base Erosion and Profit Shifting) project, notably within the framework of the Multilateral Convention (MLI, ratified by Switzerland). The corporate tax reform (TRAF, 2020) simultaneously adapted Swiss domestic tax law to eliminate tax regimes non-compliant with OECD standards and introduce compliant alternatives (patent box, R&D). Switzerland has also introduced the OECD minimum tax (Pillar 2, minimum rate of 15% for multinational groups with turnover exceeding EUR 750 million) by constitutional means, applicable from the 2024 financial year.
What are transfer prices and how should they be documented?
Transfer pricing refers to the prices practised for transactions conducted between companies belonging to the same multinational group. In Swiss law, the arm's length principle requires that these transactions be valued as if they had been concluded between independent entities. The absence of adequate documentation may lead to reclassification by Swiss or foreign tax authorities. Switzerland does not impose formal mandatory documentation by a specific transfer pricing law, but the FTA and cantonal authorities rely on the OECD Transfer Pricing Guidelines. PBM Avocats assists international groups in setting up and reviewing their transfer pricing documentation.
How can a Swiss company benefit from double taxation treaties to reduce foreign withholding taxes?
Double taxation treaties (DTTs) concluded by Switzerland generally provide for reduced withholding tax rates on dividends, interest and royalties paid by foreign entities to Swiss beneficiaries. To benefit from these reductions, the Swiss beneficiary company must meet the conditions of the applicable treaty — particularly the beneficial ownership clauses and, in certain recent DTTs, enhanced anti-abuse clauses (Principal Purpose Test, PPT, or LOB clauses). The application for refund or reduction at source is addressed to the foreign tax authority, often via a specific form. PBM Avocats manages these procedures on behalf of its clients.