Double Tax Avoidance Agreement (DTAA) Between India and Switzerland

The DTAA between Switzerland and India prevents residents of both countries from being taxed twice on the same income, with tax paid in any one of the countries claimed as credit in the other. 

The DTAA caps TDS at 10% on dividends, royalties, interest and technical services fees, while laying out clear rules for taxing capital gains from immovable property, business assets and shares. DTAA offers legal certainty and lower withholding tax, the agreement encourages cross-border investment and reduced tax evasion.

TDS is the part of income withheld when a non-resident get payment, at rate which is agreed on both countries. As per the India-Switzerland DTAA, TDS is capped at 10% of gross income across the board for dividends, interest, royalties or even technical services fees.

What is DTAA Between India and Switzerland?

The DTAA, or Double Tax Avoidance Agreement, between India and Switzerland, was signed on 21st April 1995 and amended on 7th February 2001 and 27th December 2011. This step was taken to avoid double taxation on the same income. This agreement has 29 Articles. In these Articles, information related to the definition, the scope of the agreement, income taxation, and a technique for eliminating tax has been discussed. 

The Government of India and the Swiss Federal Council decided to sign this agreement to ease the process of doing business by residents of both nations. A DTAA makes the taxation system in both countries easier, one where you earn it and one where you are a citizen or reside in. 

If you are a citizen of India and move to Switzerland while leaving sources of income in the previous country, you might have to pay taxes on income in both countries. The DTAA between India and Switzerland ensures that you pay tax on your income only once.

Taxes Covered Under DTAA

Taxes that are covered under DTAA between India and Switzerland are present in Article 2 of the agreement. Let us take a look at the list of taxes which are applicable under this convention:

In the case of India (Indian tax)

• Income tax, along with any surcharge applicable to it

In the case of Switzerland (Swiss tax)

• The federal, communal, and cantonal taxes on income. This includes earned income, capital gains, industrial and commercial profits, total income and other items of income.

Apart from the taxes discussed above, any substantially similar or identical tax that is applicable in any of the contracting states after the date of signature of the agreement would also be considered under DTAA. 

If any tax is applicable in place of any other tax that is part of DTAA, this new tax will be applicable in DTAA. Competent authorities of both states need to notify about any changes in respective taxation laws within a reasonable period of time.

However, the taxes mentioned above do not include any interest applicable or penalty under the law enforcement of both contracting states in relation to taxes that are applicable under DTAA. 

Taxation on Capital Gains under DTAA

Article 13 of the DTAA between India and Switzerland discusses tax rates applicable to capital gains earned by residents of both contracting states. This article also specifies which capital gains are taxable in which contracting state. Let us take a look at the rules applicable:

• Income from the alienation of immovable property that includes livestock and equipment for agriculture and forestry is taxable in the state it is present.
• Capital gains from moveable property that are part of a business and used for enterprises in other contracting states are taxable in that state only.
• Income from the alienation of ships or aircraft or moveable property for the operation of ships and aircraft in international traffic is taxable in the other contracting state.
• Capital gains from the alienation of shares of a company's immovable property, which is situated in a contracting state, will be taxable there.
• Income from the alienation of any other types of shares will be taxable in the state where the alienator resides.
• Income from any other type of property than those discussed above will be taxable in the contracting state of which the alienator is a resident.

Significance of India Switzerland DTAA for Both Countries

Residents of India and Switzerland can opt for benefits offered by DTAA between India and Switzerland. Following is a list of benefits that are available for taxpayers under the DTAA: 

• DTAA helps attract investments to both the contracting states by offering tax benefits as well as avoiding double taxation.
• DTAA offers relief in the form of tax exemption in case a resident of a contracting state pays tax on their income earned in the other contracting state.
• This agreement also reduces the chances of tax evasion in both contracting states.
• DTAA offers an anti-abuse provision that ensures benefits are available to only genuine residents of contracting states.
• DTAA offers legal certainty that certain rules regarding the applicability of tax on international income will be followed.
• Lower withholding tax is applicable in the form of lower TDS on various types of income, such as dividends, interest, and royalties.

Final Word

This blog has discussed the importance of DTAA between India and Switzerland. NRIs and people who invest in foreign countries can enjoy a number of advantages if they apply for DTAA in India. However, you need to submit some documents, such as a PAN card, Visa, Passport, etc., and fill out Form 10F to avail yourself of the benefits of DTAA.

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