Switzerland is committed to implement OECD BEPS measures and adapt to the new international standards. The parliament approved the federal decree regarding the multilateral instrument allowing to amend bilateral tax treaties. It may be ratified after the referendum period expires on 11 July 2019. Authors: Eric Duvoisin, Svetlana Isaenko

In order to efficiently implement some of the anti-Base Erosion and Profit Shifting (BEPS) measures, the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (“MLI”) has been negotiated as part of the OECD BEPS project. Switzerland signed the MLI on 7 June 2017 together with 67 other countries.  The purpose of the MLI is to amend the application of bilateral tax treaties (“Tax Treaties”) to implement the minimum standards for preventing treaty abuse (BEPS Action 6) and to improve dispute resolution mechanisms (BEPS Action 14).

In line with its policy of implementing the minimum standards of the BEPS Action Plan, Switzerland expressed reservations on the majority of the MLI provisions. Thus, Switzerland adopted, in particular, the following provisions:

  • Change of the preamble language of Tax Treaties to express the common intention to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including through treaty shopping arrangements;
  • Principle Purpose Test as a minimum standard to prevent treaty abuse;
  • Mutual Agreement Procedure (“MAP”) access (Switzerland reserved its right not to apply the clause stating that the MAP shall be implemented notwithstanding any time limits foreseen by domestic law. As an alternative, Switzerland will meet the minimum standards by agreeing in its Tax Treaties the maximum period of time during which jurisdictions can make adjustments to the profits of domestic taxpayers;
  • Binding arbitration clause (Switzerland reserved its right to replace a two-year period for resolving a case by a three-year period).

On 22 March 2019, the Swiss parliament approved the “Federal Decree approving the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS” (“Federal Decree”). The Federal Decree is still subject to an optional referendum (50’000 signatures are necessary in order to initiate the referendum) and cannot enter into force before the expiration of a 100-day period which should lapse on 11 July 2019. Thereupon, the Federal Council may ratify the MLI.

Based on the Swiss position, the MLI is directly amending the Tax Treaties if the counterparties to said treaty:

  • share the view that the MLI has the same effect as an amendment protocol and
  • agree to confirm the exact wording of the Tax Treaty as amended by the MLI.

Currently, the Tax Treaties with the following jurisdictions are covered treaties: Argentina, Austria, Chile, the Czech Republic, Iceland, Italy, Lithuania, Luxembourg, Mexico, Portugal, South Africa and Turkey.

If agreements on the technical implementation of the MLI can be obtained with further partner states, the corresponding Tax Treaties may equally be amended through the MLI at a later stage. Alternatively, the BEPS minimum standards can also be agreed by means of a bilateral treaty amendment. Switzerland has already expressed its intent to amend further Tax Treaties and started to do so (e.g. with the UK). For the bilateral treaty amendments, a parliamentary approval process is required.

The impact of the MLI as such on Switzerland’s treaty network will be limited given that currently only 12 Tax Treaties are covered (out of over 90 Tax Treaties concluded by Switzerland). However, it shows Switzerland’s commitment to fighting treaty abuse and its best efforts to resolving tax disputes involving treaty partners as efficiently as possible.