In brief
The amending protocol provides for a comprehensive modernization of the DTA, which has been in force since 1974, and aligns it with current OECD standards. Key aspects of the revision include the implementation of BEPS minimum standards, changes regarding permanent establishments, dividends, capital gains, and a fundamental reform of exit taxation. The revision represents the most comprehensive amendment to the Austria–Switzerland DTA in more than a decade.
At present, it remains unclear when the amendments will enter into force. As the ratification procedures in both Austria and Switzerland are still pending, the revised DTA is not expected to take effect before 2028.
Nonetheless, the forthcoming changes cast a shadow ahead and may impact tax planning today:
In particular, private individuals relocating between the two countries will face significant changes to the applicable tax framework, especially in relation to exit taxation – it may be favourable to defer a planned relocation until the Amendment Protocol is in force.
But even more, the cash repatriation for MNEs will be significantly eased by way of the envisaged reduced withholding tax threshold, and more MNEs will benefit from the 0% withholding tax rate. Thus, it may also be favourable to defer dividend distributions until the Amendment Protocol is in force.
In more detail
Residence: Tie-breaker rule for companies
The place of effective management will generally remain the decisive criterion for determining corporate residence. However, where there is uncertainty regarding the location of effective management, the competent authorities will determine residence through a mutual agreement procedure. In the absence of an agreement, treaty benefits may only be granted on a limited basis.
Permanent establishments: OECD-compliant design
A dependent agent permanent establishment may arise even where a person does not formally conclude contracts, provided that the person plays the principal role leading to the conclusion of contracts and those contracts are routinely accepted by the enterprise without material modification. From the Austrian tax authorities' perspective, this merely clarifies the existing interpretation of the law. Furthermore, it is expressly stipulated that no agency permanent establishment will arise from agency activities within a corporate group where the services are remunerated on an arm's-length basis (thus adopting the Single Taxpayer Approach).
Dividends: Participation exemption
Under the current DTA, the source state's right to tax dividends is eliminated where the recipient holds at least a 20% participation. In the future, in line with the 2017 OECD Model Convention, a withholding tax exemption will already be available for participations of at least 10%, provided that the participation is held for an uninterrupted period of at least 365 days. This measure is intended to prevent multiple layers of taxation and facilitate cross-border investment, and is a welcome change.
Interest: Beneficial ownership requirement
The state of residence will only enjoy the exclusive right to tax interest payments if the recipient of the interest is also the beneficial owner of the interest.
Exit taxation: Switzerland brought closer to EU treatment
The current special rule contained in the DTA will be replaced. In the future, a physical relocation of an individual to Switzerland will generally be treated in the same manner as a relocation to an EU Member State (non-assessment concept).
The favourable treatment will no longer be limited to specific "shares in companies" but will be extended to all privately held assets subject to exit taxation, including, for example, investment fund units, debt securities, derivatives, and cryptocurrencies.
The provision now dynamically refers to the Austrian domestic exit taxation rules applicable to private assets. This ensures that future developments in Austrian exit taxation law will automatically apply in the Swiss context without requiring further amendments to the DTA.
However, unlike relocations within the EU, the non-assessment of exit tax will be conditional upon the provision of security (e.g., cash deposits, mortgages over Austrian real estate, bank guarantees, or Austrian resident guarantors).
Expansion of the credit method
As a general principle, the exemption method will remain applicable for Austrian residents. However, in order to avoid both double taxation and double non-taxation, the credit method will be substantially expanded to cover:
- Dividend income under Article 10
- Employment income under Article 15
- Directors' and supervisory board fees under Article 16
- Pensions under Article 18
- Government service remuneration and pensions under Article 19.
At the same time, new provisions addressing positive and negative qualification and attribution conflicts are introduced to prevent unintended cases of non-taxation.
Anti-abuse rule and mutual agreement procedure
Finally, the DTA will be brought into line with OECD standards through the introduction of the Principal Purpose Test (PPT) to combat the abusive use of treaty benefits.
Under this rule, treaty benefits may be denied if one of the principal purposes of an arrangement or transaction is to obtain those treaty benefits.
In addition, a time limit for initiating a mutual agreement procedure is introduced for the first time. Applications must generally be filed within three years of the first action giving rise to taxation contrary to the treaty.