Relief, disputes and the newer international layers

Credit in Italy, exemption in Switzerland

Article 24 combines two methods. Italy applies the credit method. When a resident of Italy has income that may be taxed in Switzerland, Italy may include it in its tax base. It must then deduct the Swiss income tax from its own tax, up to the part of the Italian tax attributable to that income.¹ Switzerland applies the exemption method with progression. Income and capital that may be taxed in Italy are exempt in Switzerland, but the Swiss rate on the remaining income is the rate applicable to the total. For dividends, interest and royalties, which Italy may tax only at limited rates, Switzerland grants a credit under paragraph 4.² In Swiss domestic law that credit is the credit for foreign withholding taxes under the Ordinance of 22 August 1967, which was revised and renamed the Ordinance on the Crediting of Foreign Withholding Taxes with effect from 1 January 2020.³ A Ticino resident with Italian shares can therefore claim, through his cantonal tax return, a credit for the 15 per cent Italian tax that remains after relief.

Two practical points follow. First, the Swiss credit requires that the Italian tax has been limited to the treaty rate. Italian tax withheld in excess of 15 per cent is not credited, and the investor must claim the refund in Italy. Second, the exemption with progression applies to all other Italian income, including Italian rental income and the profits of an Italian permanent establishment. A Ticino resident with an Italian flat declares the Italian rental income in Ticino only for the purposes of the rate.

Non-discrimination

Article 25 prohibits discrimination on grounds of nationality and against permanent establishments, deductions and foreign-owned enterprises.⁴ The clause has had little practical significance between Switzerland and Italy. The more important discrimination questions arise under EU law, which Switzerland does not apply, and under the Agreement on the Free Movement of Persons of 21 June 1999. The Federal Supreme Court has applied that agreement to the source taxation of non-resident employees, including frontier workers, and Chapter H.I refers to these questions.⁵

The mutual agreement procedure in practice

Article 26 provides the only mechanism for resolving disputes between the two administrations. A person who considers that the actions of one or both states result in taxation not in accordance with the convention may present his case to the competent authority of his state of residence. He must do so within three years of the first notification of the measure.⁶ The competent authority endeavours to resolve the case by agreement with the other state. Paragraph 3 allows the authorities to consult on the interpretation of the convention and on cases of double taxation not provided for in it. Paragraph 4 provides for a mixed commission of representatives of the two administrations, which meets alternately in each state. The protocol confirms that the procedure does not exclude domestic remedies.⁷

The convention contains no arbitration clause. If the competent authorities cannot agree, the double taxation remains. The EU Arbitration Convention of 1990 and the EU Directive on tax dispute resolution of 2017 do not apply to Switzerland. Arbitration could therefore arrive only through the Multilateral Instrument, whose Part VI both states would have to accept. Swiss practice is to seek a solution in every case, and the Swiss statistics show a steady flow of cases. In 2024 Switzerland started 246 mutual agreement cases, of which 108 concerned transfer pricing. It closed 212 cases and ended the year with 451 pending. On average it took about twenty months to close a transfer pricing case and about eighteen months to close other cases.⁸ Italy is one of the Swiss partner states with a continuing inventory of cases, in transfer pricing as well as in other matters.

The competent authorities have also used Article 26 paragraph 3 for general arrangements. The Federal Tax Administration lists several of them. They include the agreements on the taxation of frontier workers during the pandemic of 2020, the agreements on telework for 2023, 2024 and 2025, and an agreement of 22 December 2023 on the list of municipalities within 20 kilometres of the border. A further agreement of 19 March 2025 was concluded under the same paragraph.⁹ These arrangements show that the mutual agreement procedure has become an instrument of administrative cooperation as well as of dispute resolution.

Notes

1. Convention, Art. 24 para. 2, text (above). ↩
2. Convention, Art. 24 paras. 3 and 4, text (above). ↩
3. Ordinance of 22 August 1967 on the Crediting of Foreign Withholding Taxes (Verordnung über die Anrechnung ausländischer Quellensteuern), SR 672.201, title as amended by the Ordinance of 13 November 2019, in force 1 January 2020 (AS 2019 3873), https://www.droit-bilingue.ch/fr-de/6/67/672.201-preface-1.html; FDF Ordinance 1 of 4 December 2019 on the Crediting of Foreign Withholding Taxes, SR 672.201.1, https://www.droit-bilingue.ch/fr-de/6/67/672.201.1-preamble-2.html. ↩
4. Convention, Art. 25, text (above). ↩
5. Agreement between the Swiss Confederation and the European Community and its Member States on the Free Movement of Persons of 21 June 1999, SR 0.142.112.681, Annex I, Art. 9 para. 2 ("die gleichen steuerlichen und sozialen Vergünstigungen wie die inländischen Arbeitnehmer"), https://www.droit-bilingue.ch/de-it/0.1/0.14/0.142.112.681-annexI-lvlu1-lvlII-9-37.html; Federal Supreme Court, judgment of 26 January 2010, BGE 136 II 241, https://servat.unibe.ch/dfr/bge/c2136241.html (Geneva; resident of France earning about 95 per cent of his income from Swiss employment; Annex I Art. 9 para. 2 applied directly against the source tax tariff, which had to grant the same deductions as ordinary assessment). ↩
6. Convention, Art. 26 para. 1, text (above). ↩
7. Convention, Art. 26 paras. 2 to 4, and Protocol of 1976, text (above). ↩
8. OECD, Mutual Agreement Procedure Statistics: Switzerland, reporting year 2024, https://www.oecd.org/tax/dispute/map-statistics-switzerland.pdf (cases started, closed and pending; average times of 20.02 and 17.86 months). ↩
9. ESTV, "Italia" (above), list of mutual agreements. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of October 2026.