Taxation of savings income agreement enters into force
Bern, 24.06.2005 - The agreement on the taxation of savings income between Switzerland and the EU will enter into force on schedule on 1 July. The core of the agreement is Switzerland’s willingness to introduce a system of tax retention on interest payments to persons liable to tax in the EU. An alternative to the system of tax retention is the possibility of voluntary declaration of interest payments to the country of residence of the interest payment recipient. On the one hand Switzerland is thus ensuring that the directive on the taxation of savings income cannot be circumvented via Switzerland. On the other, fiscal banking secrecy concerning income tax which is anchored in the Swiss legal system is upheld. The agreement forms part of the second series of bilateral agreements which was signed in Luxembourg on 26 October 2004 and approved by parliament in the 2004 winter session. The definitive publication of the corresponding directives will occur on 28 June 2005 in the Official Compilation of federal legislation.
The system of tax retention applies to all interest payments which a paying agent on Swiss territory makes to an individual resident for tax purposes in an EU member state. Initially this is set at 15 per cent, rising to 35 per cent by 2011. 75 per cent of the proceeds from this system of tax retention will be passed on to the member state concerned, with the remainder going to the Confederation and the cantons (so-called "revenue-sharing"). The agreement additionally provides for foreign bank clients being able to choose between a system of tax retention and a voluntary declaration to the tax authorities.
Furthermore, in a "memorandum of understanding" with the EU and in its double taxation agreements with the individual EU member states, Switzerland also commits itself to providing administrative assistance in cases of tax fraud and similar offences on the basis of reciprocity.
An important factor in the taxation of savings income agreement is the abolition of the taxation of dividends, interest and royalty payments between related companies in the source state (e.g. head office in Switzerland with subsidiaries in France). In this way the tax burden of Swiss companies operating across Europe will be eased.
With regard to Spain, the abolition of the withholding tax on dividends, interest and (subject to a transition period) royalty payments between related companies will become reality in the foreseeable future, when an agreement on administrative assistance which has already been negotiated within the scope of the bilateral double taxation agreement enters into force. Transitional provisions of varying content are applicable, as is true of corresponding payments with the EU, also in relation to the EU member states of Estonia, Greece, Latvia, Lithuania, Poland, Portugal, Slovakia and the Czech Republic. The taxation of savings income agreement will be supplemented by a federal law. This outlines in particular the procedures and organisational measures to be applied linked with the system of tax retention on the one hand and administrative assistance in cases of tax fraud and similar offences on the other.
In the course of the entry into force of the taxation of savings income agreement, the Federal Tax Administration (FTA) will provide an extensive information section on its website. Part of this will include detailed information on the obligations to which paying agents in Switzerland are subject. This can be consulted at www.estv.admin.ch . In order to deal with technical questions on the correct application of the system of tax retention, the FTA will set up an e-mail address info-euz@estv.admin.ch .
The agreement on the taxation of savings income forms part of the second series of bilateral agreements signed with the EU on 26 October 2004. The agreement on processed agricultural products entered into force on 30 March 2005, and the agreement on retirement pensions of EU officials on 31 May 2005.
Address for enquiries
Heinz Fehr, Federal Tax Administration, tel. 031 322 73 19
Véronique Humbert, Federal Tax Administration, tel. 031 3239404
Christoph Schelling, Federal Tax Administration, tel. 031 323 0182(available from 27 June 2005)
Publisher
Federal Department of Finance
https://www.efd.admin.ch/efd/en/home.html
