Switzerland Set To Sign French Inheritance Tax Deal

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The Swiss Federal Council has given the go-ahead for the signing of the new Franco-Swiss agreement, aimed at avoiding double taxation in the area of inheritance tax.

The current agreement dates from 1953 and has not been revised since then. In 2011, France informed Switzerland that it was considering rescinding the accord, arguing that it was no longer in line with its policy on agreements. Switzerland decided that a revision was preferable to an unregulated situation because the treaty guarantees legal certainty for taxpayers and avoids the risk of double taxation.

The new text provides that France can tax heirs and beneficiaries resident in France, although deducts any inheritance tax paid in Switzerland. Switzerland thereby retains its primary right of taxation and its taxing power is not affected. In addition, the agreement establishes tax transparency for real estate companies: indirectly held property will in future be taxable in the place where the property is situated.

In July 2012, a preliminary draft agreement was initialled and was submitted to a hearing. Due to the negative reaction of various Swiss cantons and interested parties, Switzerland proposed a number of improvements in the draft to France and, following subsequent discussions, a more favorable arrangement was found. The following improvements were made:

•  Heirs and beneficiaries of the deceased who are resident in Switzerland must have been resident in France for at least eight out of ten years prior to the period of receipt, in order for France to be able to exercise its taxing power;
• Real estate held indirectly via a company is taxable where these assets are located. However, this tax is not applicable if the deceased or his/her family owns half of this company and that the property represents more than a third of all of the assets of this company;
• The agreement will be applicable subsequent to approval by parliament and after the deadline for the optional referendum has expired. Originally, application of the agreement had been envisaged from January 1, 2014.

The signing of the inheritance tax agreement between Switzerland and France will occur in July. It is in line with the principles of international tax law. As is the usual practice, the text of the agreement will be published at the time of signature.

The signing of the treaty will allow structured dialogue to be pursued on pending financial and tax matters between the two countries: administrative assistance in tax matters, regularization of untaxed assets, expenditure-based taxation (lump-sum taxation), and the Basel-Mülhausen airport.