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04 September 2019 / article

Switzerland deposits ratification instrument for the Multilateral Instrument (MLI) – entry into force on 1 December 2019

On 29 August 2019, Switzerland deposited its instrument of ratification for the Multilateral Instrument (MLI). After receiving approval from the Swiss parliament in March 2019 and the lapsing of the applicable referendum period for the MLI on 11 July 2019, the Swiss government has now ratified the instrument meaning that the agreement will enter into force on 1 December 2019 for Switzerland. However, the entry into effect for Swiss covered tax agreements will be postponed until Switzerland has renegotiated the relevant double tax agreement.

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1. Entry into effect

The MLI differentiates between entering into force in general for a contracting party (entry into force) and having effect with respect to a specific covered tax agreement (entry into effect).

As the MLI enters into force on 1 December 2019 for Switzerland, the MLI would in principle have effect for covered tax agreements as of 1 January 2020 for taxes levied at source and as of mid-2020 for all other taxes.

However, as Switzerland follows the "amending view" with respect to the effect the MLI has on covered tax agreements, it has reserved the right to apply the MLI only to a covered tax agreement once Switzerland has expressly notified the OECD that it has completed its internal procedures to amend the specific treaty. Therefore, covered tax agreements for Switzerland will only be affected once the double tax treaty has been successfully amended as the MLI will then apply 30 days after Switzerland has notified the OECD that is has completed is internal procedure to renegotiate the relevant double tax treaty (reservation for separate notifications pursuant to article 35(7) MLI). Accordingly, Switzerland is now in the process of amending the covered tax agreements. For certain treaty partners, Switzerland has opted to amend the double tax treaty without including the agreement under the MLI (e.g., the revised double tax treaty with the UK).

2. Implementation choices made by Switzerland

Under its long-standing international tax policy, Switzerland opts to implement international minimum standards only. Within the context of the MLI, Switzerland therefore notably will adhere to the new standards on (i) the prevention of treaty abuse by applying a principle purpose test (PPT) and (ii) dispute resolution to avoid double taxation (mutual agreement procedure and mandatory binding arbitration).

Switzerland currently does not intend to implement other measures which are not part of an overall international consensus such as the new rules on the artificial avoidance of permanent establishments or savings clauses. Most notably, Switzerland's unilateral exemption for income from non-Swiss permanent establishments will remain unchanged.



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