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France Rescinds IHT Treaty With Switzerland

France has announced its decision to rescind the 1953 inheritance tax (IHT) agreement with Switzerland with effect from December 31, 2014.
From January 1, 2015, domestic inheritance tax rules will apply in the absence of a treaty, removing a degree of certainty that the treaty provided concerning the taxing rights of the two territories, and in particular provisions that sought to avoid double taxation. Provisions governing the taxation of persons with dual residence will cease to apply, and a provision providing for arbitration in the case of a dispute will no longer have force.

The Swiss Federal Council said it regrets France's decision to terminate the deal, insisting that an 'imperfect agreement' would have been preferable to a treaty vacuum. It said it would continue to negotiate with France to resolve outstanding tax matters, including the taxation of cross-border commuters.

Under the terms of the 1953 IHT treaty between France and Switzerland, inheritances are taxed in the country of residence of the deceased, rather than the beneficiary's country of residence.

France threatened to denounce the deal back in 2011, arguing that the text no longer fits with the nation's treaty policy.

At Switzerland's request, a revised agreement was negotiated. The new deal would allow France to tax heirs and beneficiaries of Swiss citizens resident in France under certain conditions. The text also permits Paris to tax assets located in France belonging to a deceased person who was residing in Switzerland.

The Swiss Council of States, the upper house of parliament, has blocked the deal and sought for the text to return to the Federal Council for renegotiation. France has made clear that it is not prepared to agree further concessions.


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