Double taxation treaty network

To minimize the effect of double taxation in Switzerland and abroad, Switzerland has concluded tax treaties covering direct income taxes with all important industrial countries and many other countries. Most of these treaties are patterned on the principles of the OECD model convention, which defines where the income or the assets are to be taxed and also describes the method for the elimination of double taxation. Switzerland adopted the tax exemption method, exempting income allocable to a foreign country from taxation in Switzerland. Such income and net worth is only considered for calculating the applicable tax rate (progression). On certain income streams (dividend, interest and licence fees), both states, the state in which the income is earned and the state of the recipient’s residence, are legitimated to tax them. However, the double tax treaty limits the right of taxation of the source state, whereas such source tax is creditable against the tax levied in the recipient’s state of residence. To date, more than 70 tax treaties are in effect, plus also the EU Bilateral Agreements as of 1 July 2005. As Swiss tax treaties are treated as international conventions, they generally supersede federal as well as cantonal/communal tax rules.

Swiss double tax treaties apply to persons (individual or company) who are resident in one or both of the contracting states. As already mentioned in Lump-sum taxation, Swiss residents applying for the lump-sum taxation do generally qualify for treaty relief as well. However, some treaties provide for special conditions to be met in order to benefit from the treaty applied. Apart from the tax treaties covering direct income taxes, Switzerland also concluded a few tax treaties in the area of inheritance and estate tax. Switzerland has not negotiated any double tax treaty concerning gift taxes so far. Furthermore, there are some special treaties relating to cross-border commuters, taxation of international air and transport, and the tax situation of international organizations and their staff.