INTERNATIONAL TAX: Switzerland, Liechtenstein Add Purpose Test To Tax Treaty.

As published on law360.com, Tuesday 14 July, 2020.

Switzerland and Liechtenstein signed an amendment to their double-tax treaty Tuesday, adding an international standard known as the principal purpose test to stop companies from engaging in transactions designed to facilitate tax avoidance.

In a news release, the Swiss State Secretariat for International Finance said the two countries, which share a border, had signed a protocol amending their double-tax convention. The protocol enacts minimum standards for double-tax agreements that have come out of the Organization for Economic Cooperation and Development's project to curb base erosion and profit shifting, or BEPS.

The protocol of amendment to the treaty "contains an anti-abuse clause which refers to the main purpose of an arrangement or transaction" to ensure that the treaty is not abused, the release said. It also supplements the provision on the mutual agreement procedure, the procedure by which countries resolve cross-border tax disputes, in accordance with the minimum standard, the release said.

The principal purpose test, a key provision of the OECD's BEPS project, denies treaty benefits if tax avoidance is one of the main goals of a transaction.

Switzerland is in the process of amending its double-tax treaties to align them with international norms such as the principal purpose test. Frank Wettstein, a spokesman for the Swiss Finance Ministry, told Law360 the country has signed 16 protocols aligning tax treaties to international norms. Of those, four are already in force, he said.