Croatia–Switzerland tax treaty protocol enters into force

The protocol updates the parties’ 12 March 1999 treaty to the OECD/G20 base erosion and profit shifting minimum standard. It replaces the preamble so the treaty aims to eliminate double taxation without creating opportunities for non-taxation, reduced taxation or treaty shopping. New Article 27A introduces a principal-purpose test: a treaty benefit can be denied where obtaining it was one of the principal purposes of an arrangement or transaction, unless granting the benefit would accord with the object and purpose of the relevant treaty provisions.^[1][2]

Profit adjustments and corresponding relief

The amendments also change the treatment of permanent-establishment and associated-enterprise adjustments. New Article 7(7) generally prevents either state from adjusting profits attributable to a permanent establishment more than six years after the end of the relevant taxable year. Revised Article 9 requires an appropriate corresponding adjustment where one state makes an arm’s-length associated-enterprise adjustment, and similarly introduces a six-year limit. The time limits do not apply in cases of fraud, gross negligence or wilful default. These provisions apply from 16 October 2026 without regard to the taxable period concerned.^[2]

Exchange of information and Pillar Two

A replacement Article 26 brings exchange of information on request into line with the international standard. It covers information foreseeably relevant to the treaty or domestic taxes of every kind and prevents a state from refusing solely because information is held by a bank, nominee, agent or fiduciary. The protocol also confirms that the treaty does not prevent either state from applying domestic Pillar Two minimum-tax rules enacted from the OECD/G20 GloBE model rules.^[2]

Application from 2027

For withholding taxes, the remaining amendments apply to amounts paid or credited from 1 January 2027. For other taxes, they apply to tax years beginning on or after that date. Information-exchange amendments cover information relating to tax years beginning from 1 January 2027. Groups with Croatian–Swiss payments, permanent establishments or related-party dealings should refresh treaty-benefit documentation, test arrangements against the principal-purpose rule and identify open adjustment years affected by the new six-year limits.^[1][2][3]