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Old 24.09.2009, 12:54
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3a Pension change - USA - Swiss tax agreement

GenevaLunch had a posting on the new tax agreement between US and Switzerland.

The new agreement between the two countries focuses primarily on extending administrative assistance to cases that in the past were not covered because Switzerland does not consider tax evasion a criminal offense, but rather a civil offense, while the US considers both fraud and evasion to be criminal offenses. The negotiations for the Protocol gave the governments the opportunity, Bern states, to “exempt dividends from taxation paid out by restricted pension organizations (in Switzerland: pillar 3A) in the source country.” Until now, payouts from a private pension fund have been taxable. In future this income will be exempt.

The Agreement says:

Paragraph 3 of Article 10 of the Convention shall be deleted and replaced by the following:
“3. Notwithstanding paragraph 2, dividends may not be taxed in the Contracting State of which the company paying the dividends is a resident if the beneficial owner of the dividends is a pension or other retirement arrangement which is a resident of the other Contracting State, or an individual retirement savings plan set up in, and owned by a resident of, the other Contracting State, and the competent authorities of the Contracting States agree that the pension or retirement arrangement, or the individual retirement savings plan, in a Contracting State generally corresponds to a pension or other retirement arrangement, or to an individual retirement savings plan, recognized for tax purposes in the other Contracting State. This paragraph shall not apply if such pension or retirement arrangement, or such individual retirement savings plan, controls the company paying the dividend.


Full tax agreement PDF
http://genevalunch.com/files/2009/09/16933.pdf
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Old 24.09.2009, 12:58
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Re: 3a Pension change - USA - Swiss tax agreement

I am no expert, but if this has truly been passed it means that my 3rd pillar in Switzerland is deductible as a qualified retirement savings plan on my US taxes and similarly my US IRA or 401(k) is deductible from my Swiss taxes.

Can an expert verify?
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Old 24.09.2009, 13:33
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Re: 3a Pension change - USA - Swiss tax agreement

It says the dividend paid - Does this mean that only when you take money out of a 3a, at the time of retirement, that it is no longer taxed by IRS?
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Old 24.09.2009, 21:25
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Re: 3a Pension change - USA - Swiss tax agreement

Well the treaty has just been signed, so perhaps it is too soon for experts in this forum to know all of the details yet.
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Old 25.09.2009, 11:24
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Re: 3a Pension change - USA - Swiss tax agreement

In my opinion it just says that when a dividend (profits distribution from shares) is paid to a pension fund or similar pension plans, it is not subject to withholding tax in the source state. Art. 10 refers to withholding tax on dividends, not on withholding tax on pensions capital or rent paid out to a beneficiary. This is another article of the tax treaty, which usually says that the pension paid out is fully taxable in the country of the beneficiary.

Remember: tax treaties just allocate the right to tax between 2 countries. Whether it will be effectively taxed in the respective countries, is a matter of internal tax laws of the countries.
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