Swiss Federal Council Passes Dispatch On Double Taxation Agreement With Saudi Arabia

; posted on
August 16th, 2018

The Swiss Federal Council adopted the dispatch on the double taxation agreement (DTA) with Saudi Arabia. Before entering into force, it has to be approved by Parliament in Switzerland and the necessary approval procedure has to be carried out in Saudi Arabia.

Provisions from BEPS Project

The agreement implements several provisions from the OECD and G20 project to combat base erosion and profit shifting (BEPS). For example, a principle purpose test (PPT) is introduced in the agreement to prevent treaty abuse. A timing threshold is also introduced in paragraph 4 of Article 13 to address transactions that seek to circumvent the application of that provision. However, the amendment to PE provisions by the BEPS project is not observed in this agreement. Besides, it does not embed the transparent entity provision which is used to tackle hybrid mismatch agreement.

Deviations from the OECD Model Tax Convention

Compared with OECD MTC (2017), the agreement includes service PE provision. Paragraph 3 of Article 5 provides that the furnishing of services by enterprises could potentially constitute a PE in source jurisdiction. Moreover, the definition of construction PE is extended to cover assembly or installation project and supervisory activities. In determining the profits of PE, the royalties, fees or other similar payments between PE and head office are disregarded in line with the rules established in Art.7 (3) of UN Model (2001).

Source: Swiss Federal Council

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