Intern. Double Taxation – Mutual Agreement Procedures – Refund of Taxes paid

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The aim of international double taxation agreements (DTAs) is to prevent taxation of the same income (earnings) in more than one country. If double taxation nevertheless arises, a mutual agreement procedure can be initiated between the countries concerned. Cases from our practice show this: In Switzerland, a mutual agreement solution may allow taxes to be refunded, even if they were paid many years ago.

Mutual agreement procedure to avoid double taxation; refund of taxes paid

Most international agreements for the avoidance of double taxation (DTAs) provide for the so-called mutual agreement procedure. Mutual agreement procedures are intergovernmental procedures. They are intended to bring about an agreement between the competent authorities in individual cases if both states insist on their tax claim, e.g. due to different interpretations of the DTA. The authorities are obliged to endeavour to reach a mutual agreement within the framework of the intergovernmental mutual agreement procedure.

As part of the mutual agreement procedure, the taxpayer has the right to inspect the files. According to most double taxation agreements, the application for a mutual agreement procedure must be submitted within three years of the official act that first revealed double taxation. This did not give rise to any problems in the proceedings we conducted.

Implementation of the mutual agreement solution as a result of the mutual agreement procedure

A mutual agreement solution is implemented by the tax authority of a country subsequently waiving its tax claim and refunding any taxes already paid. If the mutual agreement solution results in a waiver by Switzerland, the binding mutual agreement must be implemented ex officio. The competent authority (cantonal tax administration) must issue an implementation order. This has significant advantages: On the one hand, the taxpayer does not have to submit an application for revision, without which a legally binding assessment cannot otherwise be corrected. On the other hand, the absolute limitation period does not apply to the revision (generally 10 years from the tax year to be revised). Implementation must take place even if the double taxation relates to tax years dating back more than 10 years. It is therefore not relevant how long the mutual agreement procedure takes or how long it takes to implement the mutual agreement solution.

Repayment of large amounts as a result of the mutual agreement solution

As part of the implementation of mutual agreement solutions, the cantonal tax authorities may be obliged to refund very substantial amounts of tax for years long past. Our practice shows that the special features of the intergovernmental procedure and the coordination with appeal proceedings require experienced legal representation and support.