UNITED STATES-SWITZERLAND BILATERAL ESTATE TREATY

 

The US and Switzerland concluded a bilateral estate tax treaty in 1951. In the US, the treaty applies to federal estate tax and, in the Swiss Confederation, it applies to estate and inheritance taxes imposed by the cantons and any political subdivision thereof. The treaty also applies to any other estate or inheritance taxes of a substantially similar character imposed by the US or the Swiss cantons or any political subdivision thereof subsequently to the date of the Convention.

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Key Points

• In imposing a tax in the case of a decedent who at the time of death was a national or domiciliary of Switzerland, the US allows an exemption which would be allowable under its law if the decedent has been domiciled in that State which is prorated based on the value of the US property as a percentage of the worldwide estate value.

• If a tax is imposed in Switzerland by reason of movable property being situated within the territorial jurisdiction of the tax authority, in the case of an estate of a decedent who at the time of his death was a citizen of or domiciled in the United States, the tax authority in Switzerland allows a specific exemption which would be allowable under its law if the decedent had been domiciled within its territorial jurisdiction which is prorated based on the value of the Swiss property as a percentage of the worldwide estate value.

• Where the taxing authorities of both contracting States determine that the decedent was a citizen or domiciliary of their respective states, the taxing authority in each contracting State allows against its tax a credit for the tax imposed in the other contracting state with respect to the following property included for tax by both States.

  • Share or stock in a corporation

  • Debts (including bonds, promissory notes, bills of exchange, and insurance

  • Corporeal movable property (including bank or currency notes and other forms of currency) physically located in such other State at the time of death of the decedent, and

  • Any other property which the competent authorities of both contracting States agree upon as constituting property situated in such other State.

  • For the purpose of this provision, the amount of the tax of each contracting State attributable to any particular property is ascertained after taking into account any applicable diminution or credit as provided its law other than any credit authorised by this provision.

 

Example

George, a single man, was a citizen Switzerland at the time of his death in 2022.  His estate comprised

• Mansion in Los Angeles valued at $40,000,000

• Stock in a Texas Corporation, valued at $10,000,000

• Piper Saratoga Aircraft, registered in Switzerland, valued at $15,000,000

George left his entire estate to his Swiss friend, Sam, who, at the time of his death, was domiciled in Valais.

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Assets in the Estate:

US Assets: $50,0000,000

Swiss Assets: $15,000,000

Entire Assets: $65,000,000

 

Tax Rates and Exemptions for Year 2022:

US Exclusion Amount:                                     $12,060,000 

US Estate Tax on first $1,000,000              $345,800

US Estate Tax on balance                              40%

Valais Exclusion Amount                                CHF 10,000 (beneficiary unrelated party)

Valais Tax on Balance                                       25% (no relation)

Basis of taxation in US                                     Worldwide assets of citizens and domiciliaries

                                                                                     Situs assets of non-residents

Basis of taxation in Switzerland                  Worldwide assets of domiciliaries except for                                                                                                     immovable property or a permanent establishment                                                                                       located abroad.

Assume USD$1 = CHF 1

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Calculate US Tax Liability

                                                                                                                          $

Mansion in Los Angeles                                                              40,000,000

Stock in a Texas Corporation                                                    10,000,000

Gross Taxable Estate                                                                      50,000,000

​US Estate Tax on first $1,000,000                 345,800

US Estate Tax on balance @ 40%             19,600,000

Tax Liability                                                          19,945,800

Less: Prorated Unified Credit*                      3,669,077 

Net Tax Liability                                                                                16,276,723

Net Value of Estate                                                                         33,723,277

Tax Liability:  $16,235,031

​*4,769,800 x 50,000,000     = 3,669,077                                                           

             65,000,000                                                                             

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Calculate Sam’s Liability

                                                                                                                        CHF

Stock in Texas Corporation                                                      10,000,000

Piper Saratoga Aircraft                                                              15,000,000

                                                                                                               25,000,000

Exemption Amount                                                                                10,000

Gross Taxable Estate                                                                  24,990,000

Tax @ 25%                                                                                            6,247,500

Net Value of Estate                                                                        18,742,500

 

Tax Liability CHF6,247,500

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Net Tax Liability: $16,276,723 + $6,247,500 = $22,524,223

Net Value of Estate: $65,000,000 - $22,524,223 = $42,475,763

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