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Welcome news for some US Pensions?

US pensions

Jar of coins with “Retirement” label

We have some welcome news for US pensions (and other permitted arrangements) receiving dividends from Swiss companies. On June 7, 2021, the US announced new guidance applicable to pension and similar structures operating in the US and Switzerland.  In respect to a qualifying Swiss pension or pension-like structure, the treaty operates to exempt the US source dividends from any US withholding (which would normally be in the amount of 15%).  The text reproduced below lists pension or similar retirement structures which now qualify for benefits under the treaty regarding withholding on dividends (with an effective date of January 1, 2020).

The news arrives by way of a new Competent Authority Arrangement (CCA) between the US and Switzerland. The CCA gives a non-exhaustive list of structures that now qualify for benefits pursuant to Article 10(3) of the US-Swiss treaty assuming other treaty requirements are met. The most relevant being the requirements under Article 22 of the Treaty on Limitations of Benefits. While too extensive to cover in this blog post, the requirements are generally designed to avoid treaty or jurisdiction shopping.

Per the CCA (footnotes added to the original text):

[…]

The following arrangements are U.S. pension or other retirement arrangements that will qualify for benefits under Article 10(3) provided that they do not control the Swiss company paying the dividend and that they satisfy all additional applicable requirements set forth in the Treaty, including Article 22 (Limitation on Benefits):

  1. a) A trust providing pension or retirement benefits under a Code section 401(a) qualified pension plan (which includes a Code section 401(k) plan) and a profit sharing or stock bonus plan;
  2. b) A trust described in Code section 457()[1] providing pension or retirement benefits under a Code section 457(b) plan;
  3. c) A Code section 403(a)[2] qualified annuity plan and a Code section 403(b) plan;
  4. d) A group trust described in IRS Revenue Ruling 81-100[3] (as amended by IRS Revenue Ruling 2014-24 and IRS Revenue Ruling 2011-1), provided that it is operated exclusively or almost exclusively to earn income for the benefit of pension funds that are themselves entitled to benefits under the Treaty as a resident of the United States;
  5. e) The Thrift Savings Fund (Code section 7701(j)). Bulletin No. 2021–23 1197 June 7, 2021
  6. Qualified U.S. individual retirement savings plans

The following arrangements are U.S. individual retirement savings that will qualify for benefits under Article 10(3) provided that they do not control the Swiss company paying the dividend and that they satisfy all additional applicable requirements set forth in the Treaty, including Article 22:

  1. a) A trust that is an individual retirement account under Code section 408;
  2. b) A Roth individual retirement account under Code section 408A;
  3. c) A simple retirement account under Code section 408(p); and
  4. d) A trust providing pension or retirement benefits under a simplified employee pension plan under Code section 408(k).
  5. Qualified Swiss pension or other retirement arrangements
  6. a) A Swiss resident pension or other retirement arrangement that has been established in accordance with the Federal Act on old age, survivors’ and disabled persons’ insurance payable in respect of employment or self-employment of 25 June 1982, including a retirement arrangement covered by:
  7. the Federal Act on Vested Benefits of 17 December 1993;
  8. paragraph 6 and paragraph 7 of Article 89a of the Swiss Civil Code of 10 December 1907; and

iii. any arrangement covered by paragraph 1 of Article 331 of the Federal Act on the Amendment of the Swiss Civil Code (Part Five: The Code of Obligations) of 30 March 1911.

  1. Qualified Swiss individual retirement savings plans
  2. a) Any arrangement covered by the Federal Act on old age, survivors’ and disabled persons’ insurance payable in respect of employment or self-employment of 25 June 1982, including individual recognized pension plans comparable with occupational pension plans.

[…]

If you have questions or concerns, contacts us.

Footnotes:
[1] Certain pension plans for governmental and non-profit employees

[2] Certain employee annuities
[3] A trust created by retirement plans to pool their funds

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