On 28 June 2017 the Federal Council adopted a dispatch on the revised double taxation agreement (DTA) with Latvia in the area of taxes on income and wealth.
According to a press release issued by the Federal Department of Finance (FDF) on 28 June 2017, Switzerland and Latvia signed a Protocol of Amendment to the existing DTA on 2 November 2016. It contains several provisions relating to the BEPS project of the OECD and G20. The Protocol of Amendment contains an abuse clause which in its main features corresponds to the abuse provisions which Switzerland has agreed in most of its DTAs in recent years. An arbitration clause has also been included. The DTA also contains an administrative assistance clause in accordance with current international standards on the exchange of information on request.
In addition, the following adjustments were made with regard to the taxation of dividends, interest and royalties:
- Dividends: Under the current treaty, a 5% residual tax may be levied on dividends from qualifying holdings (at least 20% in the distributing company). Now, dividends from direct holdings in companies of at least 10% of the capital can only be taxed in the state of residence of the beneficial owner (provided that the holding period of one year had already expired at the time of payment of the dividends). If the holding period is not fulfilled at the time of payment and withholding tax is therefore withheld, this tax can be reclaimed if the holding period is fulfilled at a later date. Exclusive taxation in the country of residence also applies to dividends paid to pension funds and the National Banks.
- Interest: The current provision provides - with certain exceptions - for a residual tax of 10%. The residual tax of 10% has been retained. In future, however, the exclusive right of taxation of the recipient's country of residence will also apply to interest on loans between companies and bank loans as well as interest paid to pension funds.
- royalties: The residual tax on royalties has been reduced from 10% to 5%. In addition, royalties between companies will in future only be taxable in the country of domicile of the beneficial owner.
Further adjustments can be found in the FDF's press release and the dispatch on the approval of a Protocol of Amendment to the DTA with Latvia and the Protocol of Amendment to the DTA between Switzerland and Latvia.
