Global Tax Adviser
January 31, 2012

Impact of New Canada-Switzerland Protocol

Brian Mustard
Montreal, Transfer Pricing

The Protocol amending the Canada-Switzerland tax treaty entered into force on December 16, 2011. The Protocol was signed on October 22, 2010. The Protocol will apply to payments made, and taxation years beginning on or after January 1, 2012. The Protocol also includes changes to the mutual agreement procedure (MAP), as well as a mandatory arbitration process to be used when MAP resolutions are not reached within three years.

Withholding tax changes
Under the revised treaty, withholding tax rates will be:


  • 5% on dividends to a shareholder owning at least 10% of the voting stock of the payor corporation
  • 0% on dividends paid to the Swiss National Bank (or the Bank of Canada) or foreign entities that generally provide pension or retirement benefits, or
  • 15% on dividends in all other cases.


  • 0% on arm’s length interest payments
  • 0% on interest paid on loans from Swiss Export Risk Insurance (or from Export Development Canada for Swiss-source interest)
  • 10% on interest in all other cases.


  • 0% on copyright and similar royalties, royalties for the use of (or right to use) computer software and any patent or information concerning industrial, commercial or scientific experience
  • 10% on royalties in all other cases.

Resolving double tax disputes
The new Canada-Swiss protocol makes several amendments to the process for resolving double tax disputes under the mutual agreement procedure (MAP), including extending access to the MAP and the time limitation for adjustment by a tax authority by one year. The MAP request must occur within three years of “first notification” of the action that gives rise to double taxation, and the competent authority of Canada or Switzerland cannot increase the tax base of a resident of the other country after six years following the relevant year-end.

Mandatory arbitration
The new protocol also adds an arbitration clause to the MAP article, in line with the OECD Model Tax Convention. However, unlike the arbitration clause in the Canada-U.S. tax treaty, this clause provides few details of the procedure’s workings and only kicks in after three years of unsuccessful MAP negotiations (in contrast with the two-year rule in the equivalent Canada-U.S. tax treaty clause).

Rules and procedures to govern arbitration are to be specified in the diplomatic notes exchanged between the two countries. These notes will also specify when the arbitration provisions will enter into force.

For more information, contact your KPMG adviser.


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