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Latvia-Switzerland

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Update - Protocol to Tax Treaty between Latvia and Switzerland

The first protocol to amend the 2002 income tax treaty between Latvia and Switzerland was signed on 2 November 2016. The main amendments made by the protocol include:

  • The title and preamble of the treaty are replaced to introduce language developed under BEPS Action 6 that the Contracting States have a common intention to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through evasion or avoidance;
  • Article 10 (Dividends) is replaced to include:
    • A withholding tax exemption if the beneficial owner is a company that has directly held at least 10% of the paying company's capital for at least one year before the payment; otherwise 15% (original 5% if holding at least 20%; otherwise 15%); and
    • A withholding tax exemption if the beneficial owner is a pension fund;
  • Article 11 (Interest) is amended to include:
    • A 0% withholding tax rate on interest paid by a company to another company that is the beneficial owner; otherwise 10% (original just 10%); and
    • A withholding tax exemption if the beneficial owner is a pension fund or the interest is paid on a loan of any kind granted by a bank;
  • Article 12 (Royalties) is amended to include a 0% withholding tax rate on royalties paid by a company to another company that is the beneficial owner; otherwise 5% (original 5% for the use of industrial, commercial or scientific equipment; otherwise 10%);
  • Article 22A (Entitlement to Benefits) is added, which includes that a benefit of the treaty will not be granted if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit; unless it is established that granting that benefit in these circumstances would be consistent with the object and purpose of the relevant provisions of the treaty;
  • Article 23 (Elimination of Double Taxation) is amended in respect of Switzerland to clarify that Switzerland will only provide an exemption for gains from the sale of shares deriving value from immovable property (Article 13 (4)) if their actual taxation in Latvia is demonstrated
  • Article 25 (Mutual Agreement Procedure) is amended to include provisions regarding arbitration in cases where mutual agreement has not been reached within three years of a case being submitted;
  • Article 26 (Exchange of Information) is replaced to bring it in line with the OECD standard for information exchange; and
  • The final protocol to the treaty is amended to include the provision that if the holding period for the dividend withholding tax exemption is met after the dividend is paid, the beneficial owner may then request a refund of the tax withheld.

The protocol will enter into force once the ratification instruments are exchanged, and will generally apply from 1 January of the year following its entry into force. However, the changes to Article 25 (Mutual Agreement Procedure) will apply from the date of the protocol's entry into force, with the three-year period for arbitration beginning from that date for pending cases.

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