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After tough negotiations, Switzerland and Italy reach an agreement on a new agreement. It is intended to significantly improve the taxation of cross-border travelers, but in the medium term it is accompanied by an increase in taxes for those affected.
On Wednesday in Rome, Switzerland and Italy signed a new agreement on the taxation of cross-border workers and an amendment to the double taxation agreement. The parliaments of the two states have yet to approve the deal for it to go into effect.
Agreement on the second try
The previous 1974 agreement should have been superseded as early as 2015. At that time, however, there was no agreement: the resistance from Italy was too great.
This year, talks between Switzerland and Italy resumed. In recent months they have led to a solution that has been satisfactory for both parties, writes the Federal Department of Finance (FDF) in a press release.
Higher taxes for those affected
The new agreement significantly improves the current tax regime for cross-border travelers and contributes to maintaining good bilateral relations between the two countries, the FDF also announced.
However, according to the EFD, the overall tax burden will increase in the medium term for cross-border travelers who are new to Switzerland.
No more compensation payments after 2034
Until now, cross-border travelers residing in Italy and working in Switzerland have been taxed exclusively by Switzerland. The affected Swiss canton transferred around 40 per cent of the income from the withholding tax to the Italian municipality of residence as financial compensation.
For existing cross-border travelers, this procedure will not change until 2033. However, as of fiscal year 2034, Switzerland will no longer make compensatory payments to Italian municipalities and will retain all tax revenues.
Additional Information
For people who become cross-border travelers after the agreement takes effect, Switzerland will now only charge 80 percent of the withholding tax. In 2015, when the negotiations failed, it should have been 70 percent. In Italy, the income of cross-border travelers is properly taxed, avoiding double taxation.
Clear definitions and rules
The agreement also contains a precise definition of cross-border travelers: they are all those who live in a municipality less than 20 kilometers from the border and “in principle” return to the municipality of residence on a daily basis.
Legend:
Cross-border travelers are now considered to be those who “in principle” return to Italy every day.
Keystone
In addition, the new agreement contains a provision to combat potential abuse, which refers to the division into new and existing cross-border travelers.
The FDF writes that the agreement, which is based on the principle of reciprocity, must be reviewed every five years. A provision also provides for regular consultations and any adjustments regarding agile work or home office.
