The economy commission of the Swiss National Council has rejected the new draft Double Tax Convention (DTC) between France and Switzerland. This new DTC between France and Switzerland which revise the applicable inheritance tax regime has been negotiated but not yet signed.
The new treaty provides a punitive tax treatment of companies operating in non-cooperative jurisdictions to companies operating in low-tax jurisdiction and has been criticized mainly for bringing advantage only to France and none to Switzerland.
According to the new changes in the law, a French resident taxpayer controlling directly or indirectly at least 50% of a company based in a low-tax jurisdiction is now required to prove that the foreign company is carrying on honest business activities abroad, and that the business structure has "main justifications" other than tax avoidance. If the taxpayer fails to do this, the underlying CFC income is taxed in the hands of the French resident shareholder. When a French resident taxpayer is taxed according to CFC rules, it may also face double taxation as dividends and capital gains from the CFC remain taxable, but only on 5% of the amount.
Some representatives have even said that it would be better to risk having no DTC at all than face a national degradation at a time when Switzerland's reputation as a safe haven is under pressure.
If the new DTC between France and Switzerland will survive the ratification process, is due to enter into force in 2014.