Global Tax Adviser
January 31, 2012
Impact of New Canada-Switzerland Protocol
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
- 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.
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.