Dear Professionals,

 

In today’s edition of “Around the Globe”, Taxsutra brings you to a judgment of Swiss Federal Supreme Court, wherein the Court restricted the application of the US tax treaty on the basis of citizenship and denied the refund of the tax withheld in Switzerland in excess of rate prescribed in the treaty with respect to dividend received by a US citizen from the Swiss entities.

 

Specifically, Article 4(1)(a) of the US-Swiss tax treaty provides that a US citizen who is not a Swiss resident is considered to be a US resident "only if such person has a substantial presence, permanent home or habitual abode in the United States."  The taxpayer who was a US citizen (resided in the UK) claimed to have a permanent home in the US and asserted that he met one of the three criteria laid down under Article 4(1)(a), and thus was taxable at a lower rate on dividend income as provided for in the US-Swiss tax treaty.  However, the Court observed that Article 4(1)(a) has to be interpreted in a sense that shows there is a strong nexus with the US and accordingly considered that the “permanent home” test was not satisfied. The Swiss Federal Supreme Court also noted the factual circumstances, like the taxpayer was an active trader in the UK and possessed home in the UK which revealed that the taxpayer had stronger ties with the UK than he had with the US. In view thereof, the taxpayer was not considered a US resident under the US-Swiss tax treaty, and thus was denied the treaty benefit.