On October 29, 2015 the Swiss Federal Department of Finance issued a press release announcing that the Convention between the Swiss Confederation and the Argentine Republic for the Avoidance of Double Taxation with respect to Taxes on Income and on Capital (Hereafter: the Convention) will enter into force on November 27, 2015.
Based on Article 27, Paragraph 2 of the Convention the fact that the Convention enters into force on November 27, 2015 means that the provisions of the Convention shall have effect:
(a) in respect of taxes withheld at source, on income derived on or after January 1, 2016;
(b) in respect of other taxes on income or capital, for taxes chargeable for any fiscal year beginning on or after January 1, 2016;
(c) in respect of Article 25, for information that relates to fiscal years or business years beginning on or after January 1, 2016.
Below we will discuss a selection of the provisions included in the Convention of which we think they might interest our readers.
According to Article 2, Paragraph 3 of the Convention (“Taxes covered”) the existing taxes to which the Convention shall apply are in particular:
(a) in the Argentine Republic:
(i) the income tax (impuesto a las ganancias);
(ii) the presumptive minimum income tax (impuesto a la ganancia minima presunta);
(iii) the personal assets tax (impuesto sobre los bienes personales)
(b) in Switzerland:
the federal, cantonal and communal taxes
(i) on income (total income, earned income, income from capital, industrial and commercial profits, capital gains, and other items of income); and
(ii) on capital (total property, movable and immovable property, business assets, paid-up capital and reserves, and other items of capital)
With respect to the residency of a person other than an individual that is a resident of both Contracting States Paragraph 3 of Article 4 of the Convention (“Resident”) arranges that it then shall be deemed to be a resident of the State in which its place of effective management is situated.
Paragraph 3 of Article 5 of the Convention (“Permanent establishment”) arranges that the term "permanent establishment" likewise encompasses:
(a) a building site, a construction, assembly or installation project or supervisory activities in connection therewith, but only where such site, project or activities continue for a period or periods aggregating more than six months within any twelve month period;
(b) the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only where such activities continue, for the same and connected project, within the country for a period or periods aggregating more than six months within any twelve month period.
Article 7 of the Convention (“Business profits”) contains an interesting Paragraph 7, which states the following:
“Notwithstanding the provisions of paragraph 1, profits derived by an enterprise of a Contracting State from the activity of granting insurance or re-insurance covering property situated in the other Contracting State or persons which are residents of that other State, at the time of the conclusion of the insurance contract, may be taxed in that other State, whether or not the enterprise carries on its activity in that other State through a permanent establishment situated therein. However, in such case, the tax charged in that other State shall not exceed 2.5 per cent of the gross amount of the premium.”
Paragraph 2 of Article 9 of the Convention (“Associated enterprises”) contains a so-called appropriate adjustment clause.
Paragraph 3 of Article 9 of the Convention contains a so-called statute of limitations regulation. Paragraph 3 of Article 9 states the following:
“A Contracting State shall not change the profits of an enterprise in the circumstances referred to in paragraph 1 after the expiry of the time limits provided in its national laws and, in any case, after six years from the end of the year in which the profits which would be subject to such change would have accrued to an enterprise of that State. This paragraph shall not apply in the case of fraud or willful default.”
Paragraph 2 of Article 10 of the Convention (“Dividends”) maximizes the dividend withholding tax that a Source State is allowed to withhold over dividend distributions to:
(a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the capital of the company paying the dividends;
(b) 15 per cent of the gross amount of the dividends in all other cases.
Paragraph 2 of Article 11 of the Convention (“Interest”) maximizes the withholding tax that a Source State is allowed to withhold over interest payments to 12 per cent of the gross amount of the interest if the recipient being the beneficial owner of the interest is a resident of the other Contracting State.
Paragraph 2 of Article 12 of the Convention (“Royalties”) maximizes the withholding tax that a Source State is allowed to withhold over royalty payments to:
(a) 3 per cent of the gross amount paid for the use of, or the right to use, news;
(b) 5 per cent of the gross amount paid for the use of, or the right to use, copyright of literary, dramatic, musical or other artistic work (but not including royalties in respect of motion picture films and works on film or videotape or other means of reproduction for use in connection with television);
(c) 10 per cent of the gross amount paid for the use of, or the right to use, industrial, commercial or scientific equipment or any patent, trade mark, design or model, plan, secret formula or process, computer software or for information concerning industrial or scientific experience including payments for the rendering of technical assistance; and
(d) 15 per cent of the gross amount of the royalties in all other cases.
Paragraph 1 of Article 13 of the Convention (“Capital gains”) arranges that gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
Paragraph 4 of Article 13 of the Convention subsequently arranges the following:
“Gains derived by a resident of a Contracting State from the alienation of shares deriving more than 50 per cent of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State.
The provisions of the preceding sentence shall not apply to gains:
(a) from the alienation of shares quoted on a stock exchange established in either Contracting State or on a stock exchange as may be agreed by the competent authorities of the Contracting States; or
(b) from the alienation of shares in a company the value of which consist of more than 50 per cent of immovable property, in which the company carries on its business.”
Paragraph 5 of Article 13 of the Convention arranges the following:
“Unless the provisions of paragraph 4 are applicable, gains derived by a resident of a Contracting State from the alienation of shares or securities representing the capital of a company that is a resident of the other Contracting State may be taxed in that other State, but the tax so charged shall not exceed:
(a) 10 per cent of the gain if it is realized on a participation detaining directly at least 25 per cent of the capital;
(b) 15 per cent of the gain in all other cases.”
The Convention furthermore includes an article arranging for a Mutual Agreement Procedure (Article 24 of the Convention) and an article on the Exchange of Information (Article 25 of the Convention).
Click here to be forwarded to the press release issued by the Swiss Federal Department of Finance in this respect.
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