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The Austria-Switzerland tax treaty

On April 13 2012, Austria and Switzerland signed a tax treaty regarding cooperation in the areas of tax and financial markets. The Treaty enters into force on January 1 2013

Dr Daniel Varro

On April 13 2012, Austria and Switzerland signed a tax treaty regarding cooperation in the areas of tax and financial markets. The Treaty enters into force on January 1 2013.

According to the Treaty, illegal earnings of Austrian residents will be taxed anonymously ex post, and future capital gains of Austrian clients in Switzerland will be taxed similar to national taxation (25% withholding tax). The Treaty will furthermore secure Switzerland's bank secrecy as well as anonymity.

Swiss paying agents are obliged to identify owners of accounts and deposits resident in Austria; beneficial owners of domiciliary companies (non-trading, non-production or any other commercial business) must also be identified. Swiss paying agents include not only banks, but also dealers in securities and persons which take, hold, invest, transfer third-party assets, or only pay or secure profits for such assets on a regular basis. According to the Treaty, relevant Austrian residents (beneficial owners) having money at a Swiss paying agent (credited on accounts or deposits) may choose either notification (no illegal earnings) or ex post taxation until May 31 2013. In the event that no notification is made, ex post taxation will be mandatory applicable.

The ex post tax rate is generally 30%. The calculation will not, however, only be based on capital but also on the duration of the paying agent relationship, yield, capital amount as of December 31 2010 and December 31 2012, minimum tax rate, and inflows. Once ex post tax has been paid, Austrian claims for income and turnover tax as well as claims for inheritance tax and duty on gifts inter vivos are deemed paid. The client will be issued a certificate as proof, but remains anonymous for the time being.

The payment effect will not occur if the assets originate from money laundering, or Austrian authorities have good reason to believe that untaxed assets were at a Swiss paying agent and the person concerned was aware of such fact or prosecution measures were taken.

Any person affected may also make an optional notification which will be treated as a report to the tax authorities of false or incomplete tax declaration if any important fact in connection with such reduction is disclosed to the competent authority within reasonable time.

In order to avoid this complex form of tax declaration, one may already make an optional notification and become exempt from penalty if the tax burden of a report to the tax authorities of false or incomplete tax declaration is lower than the tax burden calculated on the basis of ex post taxation. This possibility is already frequently used, in particular by persons which evade such capital gains subject to a basic 25% capital gains tax in Austria.

The Treaty further provides for a payment on future interest proceeds, dividend proceeds, capital gains etc similar to the Austrian withholding tax on interest. The Swiss paying agent will withhold the tax anonymously and pay it for the client who will be given an annual certificate which will be accepted for tax purposes in Austria. For the first time in history, foreign financial institutions will be objectified as collecting agents for Austrian taxes.

However, the simplest method to avoid ex post taxation is to transfer funds to another country before May 1 2013. For this reason the Swiss tax authorities will report the top-ten countries to which money is drained (not the name of the bank client) between April 13 2012 and January 1 2013.

In conclusion, the tax Treaty is an advantageous compromise for both states, since past illegal earnings held by Austrians in Switzerland will be properly taxed, in the future capital gains in Switzerland will be taxed as in Austria, and Swiss banking secrecy as well as bank clients' anonymity in Switzerland will remain intact.

Dr Wolfgang Lafite and Dr Daniel Varro

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