Cyprus – Switzerland DTT and signed Protocol

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Cyprus and Switzerland, signed a protocol on Monday 21st July 2020, amending the existing double taxation agreement of 2014 intending to strengthen the framework of economic relations between the two countries.
The signed protocol introduces the minimum standards of the Base Erosion and Profit Shifting (BEPS) actions of the Organisation for Economic- Co-Operation and Development, related to bilateral agreements. The 2014 DTT’s most important provisions were, amongst others, the followings:

Withholding Tax Rates:

Dividends: 15% – of the gross amount of the dividends.
Interests: 0% of the gross amount of the interest
Royalties: 0% of the gross amount of royalties

Capital Gains
Gains from the disposal of immovable property are taxed in the country where the immovable property is situated.

Having said that, the minimum standards which have been adopted by the Multilateral Convention and are covered in protocol are as follows:

PREAMBLE: The intention of the convention is to eliminate the double taxation with respect to taxes of income and on capital without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance(including through treaty-shopping arrangements aimed at obtaining reliefs provided in this convention for the indirect benefit of residents of third states)

MUTUAL AGREEMENT PROCEDURE: the provisions of the said article state that where a person considers that the actions of one or both of the contracting states result or will result for him in taxation not in accordance with the provisions of this convention, he may present his case to the competent authority of either contracting State and the competent authorities shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention. where a person has presented a case to the competent authority of a contracting state and the competent authorities are unable to reach an agreement any unresolved issues arising from the case shall be submitted to arbitration if the person so requests in writing.

ENTITLEMENT TO BENEFITS: The provisions of the said article seek to deny treaty benefits in the case of structures that typically result in the indirect granting of treaty benefits to persons that are not directly entitled to these benefits whilst recognising that in some cases, persons who are not residents of a Contracting State may establish an entity in that State for legitimate business reasons. Although these provisions apply regardless of whether or not a particular structure was adopted for treaty-shopping purposes, the Article allows the competent authority of a Contracting State to grant treaty benefits where the other provisions of the Article would otherwise deny these benefits but the competent authority determines that the structure did not have as one of its principal purposes the obtaining of benefits under the Convention

We advise Cypriot companies with business ties in Switzerland to carefully consider the impact that the Protocol may have on their operations. Considerably, this Treaty creates favourable conditions towards enhancing the economic relations between the two contracting states and the consultants in our Cyprus office are ready to provide necessary guidance for successful enactment of new projects connecting the two counties.

Niki Antoniou
Tax and Legal consultant
Author
Niki.antoniou@cypress.com.cy