Swiss Flat-Rate Tax and Tax Treaties: A Practical Example

Taxpayers who held assets in France were considered, under the domestic laws of France and Switzerland, to be tax residents of both countries.

They had income from France and were subject, in Switzerland, to the lump-sum tax system, which provides for taxation on a lump-sum basis.

The taxpayers argued that, under the Franco-Swiss tax treaty, they should not be considered taxable in France.

The Court of Cassation, to which the case was referred, then noted that, under Article 4 of the convention, a taxpayer who is subject to a flat-rate tax cannot be considered a resident of a State.

However, following an exchange of letters between the French and Swiss tax authorities, France issued a circular that allows, under certain circumstances, a taxpayer subject to the Swiss lump-sum tax to be considered a resident for the purposes of the treaty.

The conditions set forth in the circular include, in particular, that the basis for the Swiss lump-sum tax must "in any event be equal to or greater than the taxpayer's income derived from Switzerland or France, in the case of income from French sources, when such income is given preferential treatment under the treaty (including dividends, interest, and royalty payments)."

The Court will then note that the preferential income from French sources, as defined in the tax treaty, exceeded the flat-rate basis used for the taxation of the taxpayers in Switzerland.

Accordingly, it finds that the taxpayers did not qualify as Swiss tax residents within the meaning of the treaty for the year 2007 and upholds the Court of Appeal’s decision.

Commercial Court of Cassation, March 11, 2026, No. 25-10.235

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