Double Taxation Agreement (DTA)
Switzerland has entered into a double taxation agreement with most of the industrial countries (Germany, U.S.A. etc.) to avoid a double taxation. These agreements follows as far as possible the OECD sample agreement. Switzerland uses as far as possible the release method and resigns from the taxation for incomes and assets which are assigned to the source country.
Effects
For taxpayers with vocational activities in both countries with a DTA the question arises again and again, how does this
actually affect for them. The following example is intended to clarify the advantages:
A German enterprise claims a management consultant resident in Switzerland. The fee, which is paid to the consultant, is subjected to a source tax of 25 per cent plus solidarity tax in Germany. Because the consultant must pay his tax on fee in Switzerland, his domicile, he would have to take in consideration a double taxation if the DTA does not apply. Due to the existing DTA only the home country has the right for taxation. Therefore Germany has to resign completely for the taxation of the consultant fee.
Agreement:
For natural entities the DTA is only valid for income taxes and for property taxes. This agreement follows as far as possible
the OECD sample agreement, which specifies on the one hand, where the income and/or the assets are to be taxable and on the
other hand the description of the method of the avoidance of a double taxation. Incomes and assets are only consulted for the
tax rates (progression). With certain capital returns (dividends, interests and licenses) the right for taxation is entitled
to the source country on the one hand and on the other hand to the (domicile) location country. In the source country this
taxation right is now limited, which can cause a discharge of 20 per cent to 35 per cent.
The remaining tax burden in the source country can now usually be taken into account to the Swiss tax concerned (Charge method). In Switzerland this charge method applies only exceptionally while it is represent the rule abroad. The charge method means that the taxes are to be raised to a higher level (in the source country and the domicile country).
Such double taxation agreements include especially the following fiscal facts:
- Exemption of profits from operating companies in the partner country
- Demand for repayment of the source tax
- Taxation of the licence fees