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Protocol to treaty between Finland and Switzerland signed — Orbitax Tax News & Alerts

On 19 April 2006, Finland and Switzerland signed a protocol to amend the income and capital tax treaty of 16 December 1991. The protocol was concluded in the Finnish, German and English languages; in the case of any divergence of interpretation, the English text prevails. The changes brought about by the protocol are summarized below.

The general maximum withholding tax rate on dividends will remain at 10% (Art. 10). The 5% privileged rate will be replaced by an exemption under the same conditions, i.e. direct capital holding of 20%.

The elimination of double taxation article (Art. 23) is amended by eliminating the current Para. 1(c), which concerns the Finnish 3-year rule (extension of residence of Finnish expatriates for tax purposes).

The exchange of information article (Art. 26) is amended to clarify that information may be exchanged for the administration or enforcement of the domestic laws in relation to the taxes in cases of holding companies, as well as for the carrying out of the provisions of domestic law concerning tax fraud, but only upon request. The final protocol to the treaty is amended by adding a new provision (Para. 3), which stipulates that in the case of information on holding companies, the only information that may be exchanged is that which is in the possession of, or regularly due and available in the course of the ordinary procedure to, the tax authorities and which does not necessitate specific investigation measures. It is further understood that in cases of tax fraud, banking secrecy shall not preclude the provision of documentary evidence by banks and the forwarding thereof to the competent authority of the requesting state.

The contracting states will notify each other when the constitutional requirements for the entry into force of the protocol have been complied with. The protocol will enter into force 30 days after the date of the latter of such notifications. Once in force, the protocol will have general effect from 1 January of the year next following the entry into force. However, in respect of the above-mentioned exemption for dividends, the effective date will be 1 January 2006, provided that the protocol enters into force within 2006.