SWITZERLAND Law and Practice Contributed by: Joseph Merhai, Thomas Pasquier and Laurent Schenker, Aegis
• the individual trades in Swiss real estate or acts as an intermediary in Swiss real estate transactions. Limited tax liability also arises where the individual derives certain Swiss-source income, notably where: • they carry on gainful employment or self-employ - ment in Switzerland; • they are employed by an employer with its seat, place of effective management or a permanent establishment in Switzerland and Switzerland is granted taxing rights over work performed abroad under the relevant cross-border treaty arrange - ment; • they receive directors’ fees or similar remuneration as members of the board or management of a legal entity having its seat or a permanent establishment in Switzerland; • they are the holder or usufructuary of receivables secured by a mortgage or pledge over Swiss real estate; • they receive pensions or similar benefits linked to a public law activity carried out for the account of third parties from a Swiss employer or Swiss pen - sion institution; • they receive income from Swiss private law institu - tions connected with occupational pension provi - sion or recognised forms of tied individual pension provision; or • they receive remuneration for activities in inter - national traffic (ship, aircraft or road transport) from an employer with its seat, place of effec - tive management or permanent establishment in Switzerland, subject to the statutory exemption for seafarers on Swiss-flag vessels operated by such an employer. In addition, some cantons levy a distinct tax on the sale of immovable property (see 3.1 Income From Immovable Property ). Domestic Taxation Procedure The method used to levy Swiss taxes usually depends on the nature of the income. Employment income is frequently collected by way of tax at source ( imposi- tion à la source, Quellensteuer ) where the employee is not tax resident in Switzerland (and in some cases for foreign nationals resident in Switzerland), with
subsequent ordinary assessment only in cases pro - vided for by law. By contrast, income derived from Swiss permanent establishment or from Swiss-based real estate is generally assessed under the ordinary assessment procedure, and the taxpayer must submit a complete Swiss tax return. Treaty Provision In addition to the domestic rules, the applicable tax treaty provision should also be analysed, as the scope of Swiss taxing rights is often limited by said applica - ble DTA. In particular, treaties may: • require the existence of a permanent establishment for Switzerland to tax business profits; • allocate employment income based on the place where the work is physically performed (subject to specific treaty exceptions, such as short-term assignments); and • restrict or cap Swiss taxation on certain Swiss- source items, or oblige Switzerland to grant relief from double taxation where Switzerland’s domestic law would otherwise tax the income. 2.5 Tax Residence of Legal Entities Under Swiss tax law, a legal entity is generally regard - ed as being tax resident in Switzerland if either its stat - utory seat (ie, the place of incorporation/registration) or its place of effective management is in Switzerland. The place of effective management is determined based on the factual circumstances. According to case law from the SFSC, it corresponds to the place where the entity’s actual and economic centre of activity is carried out (ie, where its day-to-day busi - ness is directed and/or where management decisions are effectively taken) rather than where purely formal functions are performed. By contrast, transparent entities (notably partnerships) are not treated as separate taxpayers for corporate income tax purposes; the tax nexus is generally assessed at the level of the partners rather than at entity level.
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