The mutual agreement procedure in Switzerland

The most important points at a glance

Themutual agreement procedure is an international process for resolving cross-border tax disputes based on double taxation treaties (DTTs). It enables the competent authorities of the participating countries to resolve differences in the application of DTTs and to prevent or correct double taxation that is contrary to the terms of the treaty. The initiative usually comes from the person concerned: they submit an application to the Swiss State Secretariat for International Financial Matters (SIF) and provide the necessary information. The actual negotiations take place exclusively between the competent authorities of the participating countries. The person concerned is informed of the status and outcome but cannot participate in the discussions. The agreement is set forth in a mutual agreement, which is implemented in Switzerland by the competent tax authority (i.e., for income tax purposes, the competent cantonal tax administration). The affected person must consent to this agreement. The aim of the procedure is to create legal certainty and ensure taxation in accordance with the applicable DTAs.

 Key Terms at a Glance

- DTA (Double Taxation Agreement): Determines which country may tax which income or assets.

- SIF (State Secretariat for International Financial Matters): The competent authority for mutual agreement procedures in Switzerland.

- StADG: Swiss Act on the Implementation of International Tax Agreements.

- OECD Model Tax Convention: International template for double taxation treaties.

These are the legal foundations

Thesubstantive legal basis for the mutual agreement procedure is found in the respective double taxation treaties. The relevant provisions are generally based on Article 25 of the OECD Model Tax Convention. This article stipulates that the competent authorities of the contracting states may consult with one another if taxation has occurred or is likely to occur that is not in accordance with the treaty.

The DTAs provide the framework under international law—their implementation in Switzerland is governed by the Federal Act on the Implementation of International Agreements in the Field of Taxation (StADG). In particular, it contains provisions on the initiation of the procedure, the applicant’s obligations to cooperate, and the domestic approval and implementation of mutual agreement procedures. The competent authority for mutual agreement procedures in Switzerland is the SIF. This deliberately creates an institutional separation between tax assessment (cantons/FTA) and international dispute resolution.

Here's how the consultation process is initiated

A mutualagreement procedure is initiated at the request of an affected person who believes that an existing or impending tax assessment is not consistent with the applicable double taxation treaty.

The application must be submitted to the competent authority in the country where the person concerned resides. For persons residing in Switzerland, this is the SIF. The application must be submitted in writing (on paper or electronically) in one of Switzerland’s official languages or in English and must include, in particular, a statement of facts, specific requests, a statement of reasons, and the relevant supporting documents. The SIF provides a form and an information sheet for this purpose .

Prior to the actual intergovernmental procedure, the SIF conducts a preliminary review to determine whether the formal requirements have been met. In particular, it assesses whether an applicable DTA exists and whether double taxation contrary to the treaty exists or is likely to occur. Many DTAs stipulate that a case must be raised within a certain period (often three years) following the first notification of the measure. The specific provision in the DTA is decisive in each case. Under Swiss law, it also applies that a request must generally be submitted within ten years of the issuance of the relevant decision by the tax authorities or after the tax becomes due.

The applicant has a broad obligation to cooperate during the preliminary proceedings. The applicant must fully present the facts of the case and provide all information and documents necessary for the proceedings. If the formal requirements are not met or if the obligation to cooperate is violated, the SIF may decide not to consider the application. The applicant, who has party status at this stage, may challenge such a decision not to consider the application before the Federal Administrative Court.

Here's how the process works

Ifthe requirements aremet, the SIF initiates the actual mutual agreement procedure. This takes place exclusively between the competent authorities of the participating countries. The taxpayer and the tax authority responsible for the assessment are not parties to the proceedings and have no right to be heard. The authorities are required to make every effort to reach an agreement—but they are not obligated to do so.

The data subject will be informed by the SIF of the receipt of the request and the progress of the proceedings and may be contacted to provide additional information if necessary. However, the data subject will not be granted access to the file.

The procedure generally concludes with a mutual agreement between the SIF and the competent authority of the other country. This agreement sets out how the case is to be handled in order to avoid or eliminate double taxation. The SIF informs the person concerned of the outcome. There is no legal remedy available against the mutual agreement itself. If it is implemented in Switzerland, it becomes binding only with the consent of the person concerned. By giving this consent, the applicant generally waives any right to appeal, and any pending proceedings must be withdrawn.

Here's how the agreement will be implemented

Upon notification from the SIF, the competent tax authority implements the mutual agreement. If the tax assessment for the relevant tax period has not yet become final, the mutual agreement is taken into account directly in the ongoing proceedings. Otherwise, implementation generally takes place through a new assessment decision or a so-called revision or implementation decision, which replaces the original assessment to that extent. The same legal remedies may be sought against such an implementation decision as against the original assessment. However, the review focuses solely on the correct implementation of the mutual agreement, not its content.

What is possible in clear-cut cases even without a formal proceeding

In addition to the intergovernmental mutual agreement procedure, the SIF also has the option of reaching a domestic agreement. In clear-cut cases, the SIF and the competent tax authority can unilaterally eliminate double taxation by adjusting the taxation in Switzerland without resorting to an intergovernmental procedure. Such a solution also requires a request from the person concerned and their consent, but is only conceivable in clear-cut situations. Accordingly, this option is rarely used in practice.

Deadlines, Interest, and Costs

A prerequisitefor the implementation of a mutual agreement is always that the request was submitted in a timely manner, as defined by the applicable double tax treaty and the Federal Tax Act. If the tax liability of the person concerned is subsequently reduced, any excess taxes paid will be refunded. Whether and to what extent interest on refunds is owed depends on the relevant domestic provisions and may be limited if the person concerned contributed to the taxation contrary to the treaty through intentional or negligent conduct.

The mutual agreement procedure administered by the SIF is free of charge for the person concerned. However, the person must bear their own costs for legal advice and representation. Under certain circumstances, the person may also be required to pay a portion of the costs associated with conducting the procedure, particularly if the mutual agreement procedure could have been avoided had the person acted with due care.

Conclusion

The mutualagreement procedure is a key tool for resolving international tax disputes. It enables the competent authorities of different countries to resolve differences in the application of tax treaties through dialogue and to ensure that taxation is in accordance with the treaty.

Particularly in complex cross-border cases, this procedure offers an important means of eliminating international double taxation and ensuring legal certainty. At the same time, it must be borne in mind that the procedure is primarily of an intergovernmental nature and that the individual concerned is not involved in the actual negotiations.