On 25 August 2014, officials from Estonia and Switzerland signed a protocol to the 2002 income and capital tax treaty between the two countries. The protocol is the first to amend the treaty since it was signed, and will enter into force after the ratification instruments are exchanged.
Main amendments to the treaty include:
The protocol changes the double taxation relief method applied by Estonia from the credit method to the exemption method. In the case of dividends subject to 10% withholding tax, Estonia will apply the credit method.
A limitation on benefits provision is added to the original protocol signed with the treaty.
The provision states that the benefits of the treaty concerning dividends, interest or royalties will not apply if they are paid under or as part of a conduit arrangement. A conduit arrangement is defined as one in which a resident of a Contracting State normally entitled to the benefits of the treaty receives an item of income from the other State, and directly or indirectly pays all or substantially all of the income to a person not resident in either Contracting State, and the main purpose was to obtain the benefits of the treaty.
The protocol also amends the articles on general definitions, permanent establishment, income from immovable property, associated enterprises, capital gains, mutual agreement procedures, and exchange of information.
The protocol will enter into force once the ratification instruments are exchanged, and its provisions will generally apply from 1 January of the year following its entry into force.
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