On 20 September 2019, Switzerland and the USA ratified the protocol of amendment of their double taxation treaty ("DTA"). The implemented protocol is intended to mark "a milestone" in the cross-border tax relationship between the two countries.

Originally, the Protocol was negotiated and signed by Switzerland and the USA on 23 September 2009 in order to revise their 1996 DTA. The Swiss Parliament approved the Protocol on 18 June 2010, whereas the US Senate only approved the Protocol recently, on 17 July 2019 because US Senator Rand Paul had blocked the ratification of the amended DTA for ten years.

The Protocol removes the differentiation between tax evasion and tax fraud in the context of administrative assistance between the two countries that had hitherto constituted a cause for differing views between the administrations. This aligns the DTA with the international standard on the exchange of information upon request (OECD) which Switzerland already applies with more than 100 nations and broadens the wording which now permits the full exchanges of information between Switzerland and the US. Prager

In addition the Protocol includes the extension of the definition of qualifying retirement arrangements, e.g. for pillar 3a solutions, and equally for US pension funds. This will allow these types of investments to be exempt from withholding tax in relation to dividends from US stocks, which currently suffer a 15 % withholding tax. The qualification for 0% withholding at source on received US dividends is only possible where the pension fund does not control the entity distributing the dividend.

Finally, a mandatory arbitration clause ensures that double taxation is avoided even in cases where the competent authorities cannot reach a consensus after two years in the mutual agreement procedure.

All in all, the approval of the Protocol finally paves the way for negotiations about future revisions of the DTA, especially for potential withholding tax exemption for qualified dividends to corporate shareholders. This would make Switzerland an even more attractive location for headquarters of US based multinational enterprises.

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