On June 12, 2019 the Kingdom of the Netherlands and the Swiss Confederation concluded a Protocol amending the Convention of 26 February 2010 between the Swiss Confederation and the Kingdom of the Netherlands for the avoidance of double taxation with respect to taxes on income (Hereafter: the Protocol).
Although the Protocol has been signed, it has not entered into force yet. For the Protocol to enter into force, the respective ratification procedures have to have been finalized in both countries.
Below we will discuss a selection of provisions included in the Protocol of which we think they might interest our readers.
Article I of the Protocol a.o. arranges that the title of the DTA is amended to the following title: “Convention between the Swiss Confederation and the Kingdom of the Netherlands for the elimination of double taxation with respect to taxes on income and the prevention of tax evasion and avoidance”.
Article I of the Protocol furthermore arranges that the Preamble of the DTA is amended as follows:
“The Swiss Federal Council
The Government of the Kingdom of the Netherlands,
Desiring to further develop their economic relationship and to enhance their cooperation in tax matters,
Intending to conclude a Convention for the elimination of double taxation with respect to taxes on income without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treatyshopping arrangements aimed at obtaining reliefs provided in this Convention for the indirect benefit of residents of third States),
have agreed as follows:”
There are several amendments made that regard pension funds. These include a.o.:
Definition of a pension fund
The following subparagraph shall be inserted after subparagraph i) of paragraph 1 of Article 3 (“General definitions”) of the DTA:
“j) the term “pension fund” means any plan, scheme, fund, trust or other arrangement established in a Contracting State which is:
(i) regulated by and generally exempt from taxes on income in that State; and
(ii) operated principally to administer or provide pension or retirement benefits or to earn income for the benefit of one or more such arrangements.”.
Amending Article 10 (“Dividends”) of the existing DTA
Furthermore the Protocol arranges that a Source State is not allowed to withhold withholding taxes over dividends paid to pension funds by having of of Article 10, Paragraph 3, Subparagraph b) of the DTA being replaced by the following subparagraph:
“b) the beneficial owner of the dividends is a pension fund.”
Elimination of double taxation
The Protocol arranges that the exisiting Article 22 (“Elimination of double taxation”) shall be deleted and replaced by a new Article 22 also containing regulations regarding the Elimination of double taxation.
The Protocol arranges that a new Article 27a (“Entitlement to benefits”) will be inserted in the DTA. This new Article 27a contains an anti-abuse provision (the so-called Principal Purpose Test).
Mutual Agreement Procedure
Under the existing DTA a taxpayer has to present its case to the competent authority of the Contracting State of which he is a resident (or in certain situations to the Contracting State of which he is a national). The Protocol arranges that the taxpayer will be able to present his case to the competent authority of either Contracting State. For this Article 25, Paragraph 1 of the existing DTA (“Mutual agreement procedure”) will be replaced by the following:
“1. 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, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of either Contracting State. The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Convention.”.
Furthermore the Protocol also changes the regulations regarding the taxation of pensions. In this respect the Protocol a.o. arranges that existing Article 18 (“Pensions, annuities and social security payments”) of the DTA will be replaced by a new Article 18.
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