The maximum rates of withholding tax are:
- 15% on dividends generally, and 10% if the recipient is a company holding directly at least 25% of the capital in the dividend-paying company; and
- 12% on interest.
According to the protocol (para. 5), Art. 12(2)(withholding tax on royalties) does not apply as long as Switzerland does not, according to its domestic law, levy a withholding tax on royalties paid to nonresidents, and royalties will be taxable only in the state of residence of the beneficial owner of the royalties.
If, however, Art. 12(2) becomes applicable, the maximum rates are:
- 15% on royalties generally;
- 3% on royalties paid for the use of, or the right to use, news;
- 5% on copyright royalties; and
- 10% on royalties for the use of, or the right to use, industrial, commercial or scientific equipment or any patent, trademark, design etc., or for the use of information concerning industrial or scientific experience, including payments for technical assistance.
For the avoidance of double taxation, Argentina generally uses the ordinary credit method and Switzerland the exemption-with-progression method. With respect to dividends, interest and royalties, however, Switzerland will, upon request, allow relief to a resident, which may consist of (a) an ordinary credit, (b) a lump-sum deduction of the Swiss tax or (c) a partial exemption.
Other deviations from the OECD Model Convention include:
- a building site or a construction, assembly or installation project constitutes a permanent establishment (PE) if it continues for more than 6 months;
- the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose constitutes a PE where such activities continue for the same or connected project in the country for period(s) aggregating more than 6 months within a 12-month period;
- according to the protocol, "exploitation of natural resources", which constitutes a PE under Art. 5, includes fishing activities that continue for more than 90 days in any 12-month period;
- an independent agent almost wholly working for one enterprise of the other state is not deemed to be independent;
- profits derived from insurance activities in the other state may be taxed in that state at a rate of up to 2.5% of the gross premium, whether or not the insurance company maintains a PE there;
- transfer pricing adjustments between associated enterprises are not allowed for 6 years after expiration of the year in which the income accrued;
- income from independent personal or professional services is treated under the provision on employment income;
- as regards capital, shares of a company which is a resident of one state but is owned by a resident of the other state are taxable only in the other state; and
- according to the protocol, if Argentina introduces a branch profit tax, the total tax on the branch may not exceed the income tax applied on profits of an Argentine company plus 10% of such profits after deducting such company tax.
The protocol contains a most-favored nation clause which requires Argentina to extend to residents of Switzerland the provisions in treaties with other OECD countries which grant more favorable rates on interest, dividends, royalties and insurance contract payments in the source state.
The exchange of notes between the two states of 13 January 1950 regarding the taxation of shipping and air transport will be suspended when this treaty becomes effective.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
For further information contact Manuel G Diskenstien, Deloitte & Touche, Buenos Aires, Argentina on Tel: +54 1 326 4046, Fax: +54 1 326 7340