The Federal Council is proposing to write off a motion by the Commission for Economic Affairs and Taxes of the Council of States (WAK-S) concerning the consideration of general and social deductions for persons with limited tax liability abroad.
On 29 April 2014, the WAK-S submitted Motion 14.3299 "Consideration of general deductions and social security deductions for persons with limited tax liability abroad". With this motion, the Federal Council was instructed to ensure within the framework of the negotiation of double taxation agreements (DTAs) that general deductions and social security deductions are fully taken into account for persons resident in Switzerland and persons with limited tax liability abroad. The subject of the motion is the Swiss practice that general deductions and social security deductions are only granted in proportion to income taxable in Switzerland, and the consequence of this is that the part of the deductions that is attributable to income taxable abroad can only be claimed if this is provided for under the applicable foreign law.
The Federal Council requested that the motion be rejected. The Council of States and National Council, however, accepted the motion on 17 June 2014 and 11 December 2014 respectively.
The Federal Council then conducted a consultation with the cantons and the Conference of Cantonal Finance Directors (CFC) to identify the possibilities for fulfilling the motion.
According to the report of the Federal Council (preliminary report dated 5 September 2017), all comments on the type of implementation have been expressed and the variants proposed by the Federal Council for implementation at the expense of Switzerland have been rejected.
The only alternative implementation option that was advocated was a provision in the DTAs according to which the other contracting state must grant those deductions that are not granted in Switzerland according to Swiss practice. It was also requested that a provision in the DTA should not apply if the other contracting state does not grant any deductions, but applies lower tax rates instead. At the same time, the FDK doubted whether such implementation would be at the expense of the other
State party in DTA negotiations at all. It therefore demanded that implementation be completely refrained from if implementation requires concessions from Switzerland in other points of the DTA.
The Federal Council does not consider it realistic either to implement the motion at the expense of foreign countries and has therefore not put it up for discussion in the consultation with the cantons and the FDK. It was unlikely that a state would allow itself to be obliged in a DTA to grant deductions under Swiss law within the framework of its taxation. The motion was therefore not feasible and the Federal Council requested that it be written off.
The report (preprint of 5 September 2017) is available here. This and other Federal Council reports are also available here.
