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Double Tax Treaty Switzerland – USA: Treaty Eligibility of Pension Institutions

Benjamin De Zordi TLS Partner, PwC Switzerland 26 May 2021

On 20 September 2019, the protocol to amend the existing Switzerland-United States double tax treaty entered into force. Under the amended double tax treaty also dividends to individual pension institutions – in Switzerland e.g. pillar 3a – are exempt from withholding tax (applicable since 1 January 2020).

On 20 May 2021, the State Secretariat for international finance published a competent authority arrangement regarding treaty eligibility of certain U.S. and Swiss pension plans or other retirement arrangements, including individual retirement savings plans, that may be eligible for benefits. The arrangement is effective for dividends paid on or after 1 January 2020. 

Qualified individual retirement savings plans

The main change is the definition of “Qualified individual retirement saving plans” that generally qualify for benefits under Article 10 Paragraph 3 of the double tax treaty:

  • Qualified Swiss individual retirement savings plans are arrangements that are covered by the Federal Act on old age, survivors’ and disabled persons’ insurance (Bundesgesetz über die berufliche Alters-, Hinterlassenen- und Invalidenvorsorge, “BVG”). The definition includes 3a plans.
  • Qualified US individual retirement savings plans are trusts that are an individual retirement account under Code section 408, Roth individual retirement accounts under Code section 408A, simple retirement accounts under Code section 408(p) and trusts providing pension or retirement benefits under a simplified employee pension plan under Code section 408(k)

Individual retirement saving plans that meet these definitions are entitled to apply the double tax treaty. Dividends paid to such qualifying pension institutions shall not be taxed in the source country.

Qualified Swiss pension or other retirement arrangements

The new competent authority arrangement contains amendments to the definitions of (non-individual) US and Swiss pension funds that generally benefit under Article 10 Paragraph 3 of the double tax treaty. Swiss arrangements now also mentioned as benefiting under the double tax treaty are the arrangements – independently of their legal form - covered by:

  • the Federal Act on Vested Benefits (e.g. 2nd Pilar regulatory benefit entitlements)
  • Article 89a Paragraph 6 and 7 of the Civil Code (i.e. pension fund benefits exceeding the compulsory amount)

The amended competent authority agreement clarifies the definitions of qualified Swiss pension and retirement arrangements as well as of qualified Swiss individual retirement savings plans that can benefit from full exemptions of U.S. withholding taxes on U.S. sourced dividend payments under the double tax treaty. 

It is therefore important to ensure that for any U.S. sourced dividends received on or after 1 January 2020 by qualified Swiss pension and retirement arrangements as well as of qualified Swiss individual retirement savings plans full relief from U.S. withholding tax is ensured. We can assist you in this process with reviews of forms or in reclaims.

Contact us

Benjamin De Zordi

Benjamin De Zordi

TLS Partner, PwC Switzerland

Tel: +41 58 792 43 17

Martin Burri

Martin Burri

Director Tax & Legal Services, PwC Switzerland

Tel: +41 58 792 45 00