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New Spain-Switzerland Tax Treaty

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16 Sep. 2013

The Agreement signed in 1966 has been modified and it will enter into force next 24th of August with some significant changes of which we highlight the following:

New taxation on the disposal of Spanish Real Estate Companies (art. 13). Capital gains derived from the transfer of shares on companies for which more than 50% of their value is based on real estate may be taxable in the State where the property is located. Unlikely, the old Tax Treaty established that a Swiss resident cannot be taxed in Spain when selling shares on said kind of companies.

Withholding taxes on dividends (art.10). Dividends are exempt at source in case of direct shareholding of at least 10% during a minimum period of one year, effective taxation (with no exemption) of the company paying the dividend in its corporate income tax, none of the companies can be tax resident of a third country and both entities must be corporations.

Double taxation relief provisions (art.23). In Spain, double taxation will be eliminated according to its domestic law or allowing deduction of Personal Income Tax, Wealth Tax or Corporate Income Tax paid in Switzerland, with the limit of Spanish tax rates. Exempt incomes and assets will be taken into account to calculate the tax rate applicable.

Exchange of information clause (art.25). The new protocol establishes several rules to ensure an effective but proportional exchange of information avoiding “fishing expeditions”. It is expressly excluded the spontaneous and automatic exchange of information.

Some of the amendments are very important regarding lump-sum taxation in Switzerland, specially on the sale of real estate holding companies so watch out if you are planning to sell shares.

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