Dear Reader,

We are pleased to send our second internati-onal Tax Update on behalf of BDO Ltd, Swit-zerland.

This issue will give you a short update on in-ternational tax aspects with regard to Swit-zerland and Liechtenstein and focuses on the initiative to introduce a national inheritance and gift tax and new developments regarding the cantonal lump-sum taxation.

Additionally, we highlight the new tax agree-ments with Germany and UK regarding the taxation of investment income.

Finally, you find an update on new double ta-xation agreements, amendments, signed me-morandums and adopted dispatches.

We wish you an interesting and pleasant read.

Thomas KaufmannPartner, Head of International TaxationBDO Ltd, Zurichthomas.kaufmann@bdo.ch

FEDERAL LEGISLATIONIntroduction of a national inheritance and gift tax

In a bid to increase the income of the Old Age Insurance System, a new Swiss inheritance and gift tax initiative has been proposed by several left parties. The new tax would be enacted at a federal level, although assessed and collected at the cantonal level with the cantonal laws currently in place being repealed. The aim of the initiative is to introduce a flat rate tax of 20% on estates of individuals who had their last residence in Switzerland or on estates which are open-ended in Switzerland. Whilst it is not expected that the tax will be introduced until 2015, if enacted lifetime gifts from 1 January 2012 onward will be added retroactively to the estate and be taxed as well.

Facts & Figures:• Thetaxwillbeleviedonestatesofindividualswhoatthetimeoftheirdeathwereresidentin Switzerland,or• EstatesofindividualswhoseprobateproceedingshavealreadybeguninSwitzerland.• Flatratetaxof20%whichwillbepayablebytheestate,ratherthanthebeneficiary• Exemptions: - CHF2millionone-offexemptiononthetotalestateandtaxablegiftsmadepriortodeath - Giftstospouseorregisteredpartner - Giftstotax-exemptedlegalinstitutions,mainlycharitableinstitutions - GiftsuptoamaximumofCHF20‘000peryearperrecipientItisessentialthatindividualswhoareresidentinSwitzerlandareawareoftheproposalsandreviewtheirestatewithaviewtoconsideringmakingthegiftsortransferringassetspriorto31December2011,ifappropriate.

Itisimportanttonotethatindividualswhoaretaxedundertheforfeit(lump-sumtaxation)regimewillalsobecaughtinthescopeofthisnewinitiative,asinheritanceandgifttaxesarenotusuallyincludedwithintheiragreementwiththetaxauthorities.

JANuARy 2012WWW.bDO.ch

INTERNATIONALTAX uPDATE

2International Tax Update

The abolition of lump-sum taxation for „foreign millionaires“ in SchaffhausenVotersinSwitzerland‘scantonSchaffhausenaccepted„Nomoretaxationprivilegesforforeignmillionaires“on25September2011withmorethan55%infavour.Thereferendumforanabolitionoflump-sumtaxationwaslaunchedbyleft-wingersandtradeunionsbutwasalsosupportedbyconservativeexponents.Aspernotifica-tionoftheGovernmentCouncil,theinitiativewillbeimplementedbyearly2012.Acorrespondingamendmentinthelawondirecttaxescomesintoeffect1January2012.

DespitethefactthatforeignrichpeoplepayoverCHF670millionintaxesinSwitzerland,inthenearfuturethelump-sumtaxationmaywellbebroughttoanendinothercantonsaswell.

St. Gallen keeps hold on lump-sum taxation AlthoughthecantonofSt.Gallenwillcontinuetoadheretoitslump-sumtaxationpracticehoweverforeignrichpeoplewillhavetopaymoretaxesinthefuture.Thecounter-proposalofparlia-mentandgovernmentaswellasthesocialparty(SP)initiativeforanabolitionoflump-sumtaxationwasacceptedbyvoterson27November2011.Inthedecidingkeyquestion,thecounter-proposalfinallywon.

By2012,foreignrichpeoplewillpayseventimes(todayfivetimes)thepriceoftheirannualrentintaxoratleastCHF600‘000.Accordingtothecounter-proposal,thetaxableassetsinthetaxdeclarationis20-foldtheincome,henceCHF12million.

Bytheendof2010,thecantonofSt.Gallenhad87peopletobetaxedunderlump-sumtaxationwhopaidapproximatelyCHF70‘000each.

ADMINISTRATIVE ASSISTANcE AND DOubLE TAXATION AGREEMENTS

Switzerland and Germany sign tax agreementAtaxagreementwassignedonthe21September2011inBerlinbySwitzerland‘sandGermany‘sFinanceMinisters.TheagreementwillresolvetheoutstandingissuesthathaveexistedfordecadesbetweenGermanyandSwitzerlandconcerningthetaxationofGer-maninvestors‘investmentincomeinSwitzerland.Thenegotiationsledtoafairoutcomethathasensuredabalancedreconciliationofinterestsbetweenthetwocountries,particularlyfromataxequitypointofview.

ThetaxagreementsignedbySwitzerlandandGermanyrespectstheprotectionofbankclients‘privacyapplicableinSwitzerlandandalsoensurestheimplementationoftheGermanauthorities‘legitimatetaxclaims.Nopenalproceduresagainstbankemployeesorlegalpersonsforaidingandabettingwillbeengagedorpursuedwithrespecttothetaxescoveredbytheagreement.

Theagreementdiffersbetweenliquidationofthepastandfuturetaxationofallinvestmentincome.

• Liquidationofthepast: - anonymoushaircutonrelevantcapitalatafacevaluerateof 34%,whichinmostcasesleadstoaneffectiverateof19% - 25%,dependingonhowlongthemoneywasinCH - self-indictment

• FutureTaxationofallinvestmentincome: - finalwithholdingtaxrateof26.375% - consenttoexchangeofinformation

Thereisaguaranteedpaymentof2billionSwissFrancsmadebythe50majorSwissbanks.Paymentsresultingfromthehaircutwillbecreditedagainstthisguarantee.Inaddition,mutualmarketaccessforfinancialserviceswillbeimprovedinbothcountries.

Theagreementrequirestheapprovalofparliamentinbothcoun-tries,andshouldcomeintoeffectatthestartof2013.

british residents‘ money in Swiss banks will be taxedSwitzerlandandBritainstruckadealonthe24August2011totaxmoneykeptbyBritishresidentsinsecretSwissbankaccounts.ThedealfollowedthesamemodelastheagreementbetweenGermanyandSwitzerland.

• Dealingwiththepast: - Historicalpaymentatataxrateofbetween19%-34%.The exacttaxratewillbebasedonhowlongtheaccounthasbeen openandwhenthefundsweredepositedintheperiodfrom 2003to2010. - Clientsstayanonymous.

• Dealingwiththefuture: - Thelevychargeinrelationtothefuturewillbe48%on interest/investmentincome,40%ondividendsand27% inrelationtocapitalgains.Theratesareslightlylowerthan therespectivetoptaxratesinBritain. - HMRCwillbeabletomakerequestsinrelationtoindividual taxpayerstotheSwissauthoritiestodiscoveriftheindividual hasanaccount(s)inSwitzerland.Initiallythiswillbelimited to500requestsperyear. - GuaranteedpaymentbySwissbanksover500millionSwiss francs.

ThetreatyisexpectedtocomeintoeffectinJanuary2013.

Eu commission in doubt about taxation agreements‘ legalityTheEUcommissionissuedananalysison18November2011onSwitzerland‘staxationagreementswithGermanyandGreatBritain.Thecommissionisforcingbothcountriestorenegotiatetheirtaxa-tionagreementswithSwitzerlandotherwisefacethreatenedlegalaction.Therefore,thecommissionhasalsowarnedothercountrieswhichareinterestedintaxationagreementswithSwitzerlandtore-assesstheirterms.Nevertheless,countriessuchasBelgiumandtheNetherlandsarestillinterested.EUtaxcommissionerSemetamadeclearthatthesecountriesareallowedtonegotiatesuchtaxationagreementsbutEUrulesandthepowersoftheEUCommissionmustberespectedthereby.

3International Tax Update

Double taxation agreement with Georgia comes into effectThefirstdoubletaxationagreement(DTA)withGeorgiaintheareaoftaxesonincomeandcapitalcameintoeffecton5August2011.Ithascontributedtothefurtherpositivedevelopmentofbilateraleconomicrelations.Theprovisionsoftheagreementwillapplytothetaxeswithheldatsourceoncontributionscreditedorpaidoutonorafter1January2012,andwillapplytotheothertaxesfortaxyearsfrom2012onwards.InlinewiththeSwissagreementspolicyatthetimeofthenegotiations,theDTAwithGeorgiadoesnotcon-tainanyprovisionsontheexchangeofinformationinaccordancewiththeinternationalstandardapplicableatpresent.Newnego-tiationsareplannedtoadapttheadministrativeassistancetotheinternationalstandard.

Switzerland and colombia have revised their double taxation agreementAtthetimetheoriginaldoubletaxationagreement(DTA)betweenSwitzerlandandColombiawassignedin2007,theadministrativeassistanceclausewasnotinlinewiththeinternationalstandard.Therefore,SwitzerlandandColombiahaveconcludednegotiationsandinitialledaprotocolofamendmentonrevisingtheirdoubletaxationagreement(DTA),whichwillcomeintoeffectshortlyandbeapplicablefrom1January2012.Alongwithanadministrativeassistanceclauseinaccordancewiththeinternationallyapplicablestandard,therevisedagreementcontainsvariousprovisionsthatarebeneficialtotheSwisseconomy.

Furthermore,ithaspointedoutthattheagreementswithGerma-nyandGreatBritaininfringeonpartsoftheEUdirective(law)ontaxationregardingsavingsaswellasthesavingstaxagreementbetweenSwitzerlandandtheEU.

InsteadofinitiatinginfringementproceduresagainstGermanyandGreatBritain,theEUcommissionhasproposedthatthetwocountriesrenegotiatetheiragreements.Switzerlanditselfhasseennoneedforrenegotiationatthistimebuttheneedforclarificationonallstagesiscertain.Giventhedifficultlegalsituationofthesetaxationagreements,FrancehaswithdrawnnegotiationswithSwitzerland.

Switzerland and Spain signed revised double taxation agreementSwitzerlandandSpainsignedaprotocolon27July2011toamendthedoubletaxationagreement(DTA)intheareaoftaxesonincomeandcapital.TherevisedDTAalsocontainsprovisionsontheexchangeofinformationinlinewiththeinternationallyapplicablestandards.

Asidefromtheexchangeofinformation,SwitzerlandandSpainhaveinparticularagreedthatinfuturenowithholdingtaxwillbeleviedondividendpaymentsfromsignificantholdingsofatleast10%(uptonow25%)inthecapitalofthecompanymakingthepayment,aswellasondividendpaymentstopensionfunds.Theholdingperiodforcapitalstakesinthecompanymakingthepaymentwillbereducedfromthecurrenttermoftwoyearstooneyear.Inadditionacomprehensivearbitrationclausewasincluded.

4International Tax Update

Amendments to the double taxation agreement with Poland have come into effectTheProtocolofAmendmentfrom20April2010tothedoubletaxationagreement(DTA)withPolandcameintoeffecton17October2011.Itcontainsprovisionsontheexchangeofinfor-mationinaccordancewiththeinternationalstandardapplicableatpresent.AlongwiththeadministrativeassistanceclauseaccordingtotheOECDstandard,awithholdingtaxexemptionfordividendpay-mentsfromsignificantholdingsaswellasfordividendpaymentstopensionfundswasagreedwithPoland.Thetermsignificantholdingreferstoastakeofatleast10%(previously25%)inthecapitalofthecompanymakingthepayment,providedithasbeenheldforatleasttwoyears.TheProtocolofAmendmentsetsouttherightofthesourcestatetolevy5%taxoninterestandroyaltypayments;awithholdingtaxexemptionisprovidedinthecaseofinterestandroyaltypaymentsbetweenrelatedcompanies.Contributionstoapensionfundintheothercontractingstatewillnowbetax-deduc-tible.Inaddition,theProtocolofAmendmenttotheDTAcontainsanarbitrationclause.

TheprovisionsoftheProtocolofAmendmentwillapplyfrom1January2012,withtheexceptionofthoseconcerningthewithhol-dingtaxratesforinterestandroyaltypayments.Thesewillapplyfrom1July2013.TheProtocolofAmendmenthasbeenapprovedbyparliamentinbothcountries.

Amendments to the double taxation agreement with the Netherlands have come into effectThereviseddoubletaxationagreement(DTA)withtheNetherlandsthatwassignedon26February2010cameintoeffecton9Novem-ber2011.Itcontainsprovisionsontheexchangeofinformationinaccordancewiththeinternationalstandardapplicableatpresent.

ComparedwiththecurrentDTA,improvementshavebeenachie-vedintheareaofwithholdingtaxes:thepercentageholdingforwithholdingtaxexemptionsfordividendshasbeenreducedfrom25%atpresentto10%.Dividendpaymentstopensionfundswillalsobeexemptfromtaxinthesourcestateinfuture.Furthermore,azeroratehasalsobeenagreedforinterest.Inaddition,thenewDTAcontainsanarbitrationclause.

SwitzerlandandtheNetherlandsinformedoneanotherviadip-lomaticchannelsthatthenationalapprovalprocedureshadbeenconcluded.

Theprovisionsoftheagreementwillapplyfrom1January2012.FromthisdateadministrativeassistancerequestscanalsobemadeinaccordancewiththecurrentlyapplicableOECDstandardrelatingtooffencesoccurringonorafter1March2010.Theagreementreplacesthecurrentlyapplicableagreementdatingfrom1951and1966.

Switzerland has revised the double taxation agreement with PortugalSwitzerlandandPortugalconcludednegotiationsinAugust2011torevisetheexistingdoubletaxationagreement(DTA)sothatitincludesanadministrativeassistanceclauseinaccordancewiththeinternationallyapplicablestandard.

Thefinalagreementwillbesubjecttotheordinaryapprovalproce-duresoftherespectivecountries.

Federal council adopts six double taxation agreementsOn31August2011,theFederalCouncilapproveddoubletaxationagreements(DTAs)withBulgaria,Korea,Malta,Romania,Sweden,Singapore,andSlovakiaandsubmittedthemtoparliamentforapproval.

Switzerland and Russia sign memorandum on financial dia-logue and revised double taxation agreement AttheAnnualMeetingoftheInternationalMonetaryFundinWashingtonon25September2011,Switzerland‘sandRussia‘sFinanceMinisterssignedamemorandumoncooperationbetweenSwitzerlandandRussiaonfinancialmatters.Aprotocoltoamendthedoubletaxationagreement(DTA)wassignedatthesametime.TherevisedDTAalsocontainsprovisionsontheexchangeofinfor-mationinlinewiththeinternationallyapplicablestandards.

Switzerland and hong Kong sign double taxation agreementOn4October2011,SwitzerlandandHongKongsignedadoubletaxationagreement(DTA)intheareaoftaxesonincome.Itrepla-cesaDTAsignedbackin2010,whichnevercameintoeffect.ThenewDTAalsocontainsprovisionsontheexchangeofinformationinlinewiththeinternationallyapplicablestandards.

Awithholdingtaxexemptionwasagreedfordividendpaymentstocompaniesthatholdastakeofatleast10%inthecompanymakingthepayment,aswellasfordividendpaymentstopensionfundsandtheSwissNationalBank.Inothercases,thewithhol-dingtaxratewillbe10%.Interestwillgenerallybeexemptfromwithholdingtaxandthelimitonthetaxthesourcestateisentitledtolevyonroyaltypaymentswillbe3%.Inaddition,anarbitrationclausewasincludedintheagreement.

Amendments to the double taxation agreement with India come into effectThereviseddoubletaxationagreement(DTA)withIndiaintheareaoftaxesonincomeandcapitalcameintoeffecton7October2011.Itcontainsprovisionsontheexchangeofinformationinaccordancewiththeinternationalstandardapplicableatpresent.TheprovisionsoftheagreementwillapplytoincomeoriginatedinIndiafrom1April2012onward.InSwitzerland,theywillapplytoincomeoriginatedintaxyearsstartingfrom1January2012.Regardingtheexchangeofinformation,theprovisionswillapplytoinformationreferringtotaxyearswhichstartonorafter1January2011.

5International Tax Update

Federal council amends ordinance on double taxation agreement with united StatesAtitsmeetingon16November2011,theFederalCouncilapprovedanamendmenttothedoubletaxationagreement(DTA)betweenSwitzerlandandtheUnitedStatesthatdatesbackto1996.TheamendmentshouldensurethattheproceduralrightsofaffectedpersonsdomiciledintheUnitedStatesremainguaranteedevenifadministrativeassistancerequestsaresubmittedbasedoncertainpatternsofbehaviour.

Double taxation agreements: Federal council adopts additional dispatchesOn23November2011,theFederalCounciladoptedthedispatchesonfourfurtherdoubletaxationagreementswhichwillnowbesubmittedtoparliamentforapproval.TheDTAswithRussia,Spain,HongKong,andtheUnitedArabEmiratescontainprovisionsonadministrativeassistanceinaccordancewiththeinternationallyapplicablestandard.Theyalsopromotethedevelopmentofbilate-raleconomicrelations.

ThenegotiatedeconomicbenefitsoftheDTAsincludereductionsinwithholdingtax,interestandroyaltypaymentsinthesourcesta-teandevenpossibletaxexemptionfordividends,aswellasarbit-rationclauseswithinthescopeofmutuallyagreedprocedures.Theagreementstherebyfacilitatetheactivitiesoftheexporteconomy,promotebilateralinvestmentsandcontributetotheprosperityofSwitzerlandandthatofthepartnerstate.Inaddition,theypreventtaxdiscrimination.Thecantonsandthebusinessassociationscon-cernedhavewelcomedtheconclusionoftheseDTAs.

Liechtenstein Disclosure Facility: Formal Deadline for Notifi-cations extended to 1 April 2012PursuanttoLiechtenstein‘staxpayerassistanceandcomplianceprogramme(TACP),LiechtensteinfinancialintermediariesarerequiredtonotifyexistingUKclientswhohavebeneficialinterestsinrelevantpropertyoftheneedtodemonstratethattheyarecompliantinrelationtotheirUKtaxobligationsinrelationtothatproperty.Inordertoensurethattheprocessofidentifyingandnotifyingiscompletedaseffectivelyaspossible,HMRCandLiech-tensteinhaveagreedtoathreemonthextensionofthenotificationdeadlineto1April2012.

BDO Ltd is one of Switzerland’s leading providers of auditing, accounting and consulting services. With 31 offices nationwide, our branch network is the most extensive in the sector. For cross-border transactions, we can also draw on the support of the financially independent global BDO network. For more informa-tion about BDO Ltd, please visit www.bdo.ch.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained herein without obtaining specific pro-fessional advice. Please contact BDO Ltd to discuss these matters in the context of your particular circumstances.

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© BDO Ltd, January 2012