U.S. income tax treaty with Switzerland

Treaty documents and protocols

The 1996 convention is amended by a Protocol that modernizes information exchange and adds mandatory binding arbitration.

Convention article structure

The convention contains thirty articles, beginning with personal scope and ending with termination. Its sequence covers definitions and residence, income categories, administrative procedures, and final provisions.

Dividends, interest and royalties

Article 10 permits the residence country to tax dividends beneficially owned by its resident. The country where dividends arise may also tax them, subject to a ceiling of 5 percent of the gross amount when a company beneficially owns the dividends and directly holds at least 10 percent of the payer's voting stock. In other cases, the ceiling is 15 percent. For dividends from a U.S. regulated investment company, the 15 percent category applies. The real estate investment trust rule excludes the 5 percent category and limits the 15 percent category to an individual beneficial owner with an interest below 10 percent.^[2]

A separate Article 10 rule bars source-country tax on dividends paid by a company to a qualifying resident of the other country described in the referenced Article 28 provision, when that person does not control the payer. The dividend ceilings do not govern dividends attributable to the beneficial owner's permanent establishment or fixed base in the source country. In that case, the business profits or independent personal services article applies.^[2]

Article 11 provides that interest beneficially owned by a resident is taxable only in that resident's country. The rule has exceptions. It does not apply when the interest is attributable to a permanent establishment or fixed base in the other country, or to certain U.S. interest tied to specified financial measures and excess inclusion income. A special relationship between payer and beneficial owner also limits the article's treatment to the amount that would have been agreed without that relationship.^[2]

Article 12 gives the same residence-country-only treatment to royalties beneficially owned by a resident. The article defines royalties to include payments for the use of listed intellectual property and certain related information, along with contingent gains from transferring such rights. The exclusive treatment does not apply when the royalties are attributable to a permanent establishment or fixed base in the other country. For both interest and royalties, the convention sends those cases to the business profits or independent personal services rules. Where a special relationship causes an excessive payment, the article applies only to the amount that would otherwise have been agreed.^[2]

Residence and dual residence

Article 4 defines a resident by reference to liability to tax under a country's laws because of factors such as domicile, residence, nationality, management, or incorporation. It also has a specific rule for a U.S. citizen or lawful permanent resident who does not qualify as a Swiss resident under the initial rule or paragraph 5. That person is treated as a U.S. resident only if the person has substantial presence, a permanent home, or habitual abode in the United States.

For an individual resident in both countries, the convention uses a sequence of tie-breakers. The first is the country where a permanent home is available. If a home is available in both, the test is closer personal and economic relations. If that does not resolve residence, or neither country offers a permanent home, habitual abode is considered. If habitual abode exists in both or neither, nationality is considered. When the person is a national of both or neither, the competent authorities are to settle residence by mutual agreement. For a non-individual resident in both countries, residence depends on an agreement of the competent authorities.^[2]

Limitation on benefits

Article 22 sets conditions that a resident of either country must meet to claim benefits under the convention.^[2]

Saving clause and U.S. citizens

Under the saving clause in Article 1, the United States may tax persons treated as U.S. residents under its tax laws and its citizens, including former citizens, as if the convention had not taken effect, subject to the exceptions in paragraph 3. Paragraph 3 preserves specified convention benefits despite that rule, including provisions on relief from double taxation and non-discrimination, along with listed rules for government service, students, and diplomatic or consular personnel under stated conditions.^[2]

Questions and answers

Related resources

Related glossary terms

• Limitation on benefits: A limitation on benefits article sets conditions for entities in a treaty country to qualify for certain treaty benefits under the applicable U.S. tax treaty.
• Treaty rate table: A treaty rate table summarizes income categories and tax rates or exemptions under U.S. income tax treaties. The IRS explains the tables' scope and limits.

Related articles and guides

• U.S. income tax treaty with Kazakhstan: The U.S. treaty with Kazakhstan is the 1993 convention, with 5 and 15 percent dividend limits and 10 percent limits on source tax for interest and royalties.
• U.S. income tax treaty with France: The U.S. income tax convention with France is amended by two protocols, and the 2009 Protocol changed the dividend and royalty rules for qualifying holders.

Related pages

• Tax treaties: All treaty partners listed by the IRS.
• Treaty documents lookup: Find IRS-listed treaty documents by country.