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04 June 2020 / article

Swiss MLI notification regarding the DTT between Switzerland and Luxembourg

On 27 May 2020, Switzerland notified the OECD of the completion of its internal procedures for entry into effect of the double tax treaty between Switzerland and Luxembourg under the MLI (Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting).

Due to the notification, the MLI will in principle have effect on the Swiss-Luxembourg treaty as of 1 January 2021. The wording of the treaty is yet to be published. However, it is currently expected that the revised Swiss-Luxembourg treaty will only incorporate changes pursuant to the choices made by Switzerland and Luxembourg under the MLI. This notably applies to the inclusion of the principal purpose test as a general anti-avoidance rule. With respect to Switzerland, the Swiss federal tax administration has constantly applied a general anti-avoidance rule under the current treaty and the MLI should therefore not substantially impact current practice in Switzerland. From a Luxembourg perspective, the principal purpose test will give more leeway to the authorities to challenge potential treaty abuse, but the changes to the treaty are otherwise not expected to have a significant impact. It is therefore recommended to review existing Swiss-Luxembourg investments in view of the revised treaty.



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