Switzerland–Croatia DTA Amendment Implements OECD Minimum Standards

Switzerland and Croatia signed a protocol of amendment to their double taxation agreement on 18 July 2025 in Zagreb. The update brings the bilateral treaty into line with the OECD's minimum standards on treaty abuse and cross-border information exchange, closing gaps that have existed since the original DTA was concluded. Parliamentary ratification is still required in both countries before the changes take legal effect.

What the Protocol Changes

The amendment tackles two distinct areas where the existing treaty fell short of current international benchmarks.

Treaty Abuse Clause

The protocol inserts an anti-abuse provision based on the principal purpose test. Under this clause, a treaty benefit can be denied if one of the main purposes of an arrangement or transaction was to obtain that benefit. This aligns the Switzerland–Croatia DTA with the OECD's Base Erosion and Profit Shifting (BEPS) Action 6 output, which requires all compliant treaties to contain at least a minimum anti-abuse rule. The practical effect is that purely tax-driven structures routed through either jurisdiction will face a higher burden of proof to access reduced withholding rates or exemptions.

Administrative Assistance and Information Exchange

The protocol also updates the administrative assistance clause to reflect the OECD's current standard for exchange of information upon request. This means that either competent authority can request specific tax information from the other, and the requested authority cannot decline solely on the grounds that the information is held by a bank or financial institution. For firms with cross-border structures touching both Switzerland and Croatia, this materially raises the likelihood that tax authorities will obtain the data they need to challenge non-compliant arrangements.

Understanding how Switzerland applies its bilateral treaty obligations alongside domestic compliance obligations is essential context; our analysis of how Switzerland's Russia sanctions update affects compliance workflows illustrates how quickly Swiss regulatory changes can reshape cross-border reporting duties.

Stakeholder Reception and Legislative Path

Cantons and Business Circles

The Swiss cantons and the business communities consulted during the negotiation process welcomed the conclusion of the protocol. That reception matters: cantonal sign-off is a practical prerequisite for Swiss ratification, and business-circle support reduces the risk of parliamentary pushback. Croatia's position was not separately detailed in the announcement, but the signature itself signals agreement at government level on both sides.

Ratification Timeline

The treaty cannot enter into force until parliaments in both Switzerland and Croatia have approved it. Switzerland's treaty ratification procedure typically involves Federal Council submission to the Federal Assembly, followed by a potential optional referendum period. Croatia, as an EU member state, follows its own domestic constitutional ratification process. No target date for entry into force has been published.

Relevance for Accounting Firms and CFOs

This amendment matters beyond the two signatory countries. Several points deserve attention from compliance and tax teams.

Principal Purpose Test in Practice

The principal purpose test shifts the analytical burden from a purely formal review of treaty conditions to a substance-and-intent inquiry. Tax advisers reviewing holding structures, royalty flows, or financing arrangements that route through Switzerland or Croatia will need to document genuine commercial rationale more rigorously. Arrangements that existed before the protocol are not automatically grandfathered once the treaty enters into force.

Information Exchange Exposure

The updated administrative assistance clause means that Swiss and Croatian tax authorities gain a credible channel to request account and transaction data from each other. Clients with undisclosed or under-reported income connected to either jurisdiction should be aware that the barrier to obtaining information from the other side has been substantially lowered.

The wider trend toward multilateral information exchange is shaping audit risk everywhere; our note on the OECD minimum tax audit reduction framework for multinationals provides additional context on how tax authorities are coordinating globally.

Frequently Asked Questions

What is the principal purpose test and how does it affect existing structures?

The principal purpose test allows treaty benefits to be denied if obtaining that benefit was one of the main purposes behind an arrangement. Existing holding or financing structures should be reviewed for substance before the protocol enters into force, since a purely tax-motivated design may no longer qualify for reduced rates under the amended treaty.

When will the amended treaty take effect?

The protocol must be ratified by the parliaments of both Switzerland and Croatia before it enters into force. No specific date has been announced. The Swiss Federal Assembly and Croatia's parliament each need to complete their respective domestic approval procedures.

Does the updated information exchange clause require automatic reporting?

No. The clause follows the OECD standard for exchange of information upon request, not the automatic exchange standard under the Common Reporting Standard. A competent authority must make a specific request; unsolicited bulk transfers of data are not covered by this provision.

Which taxes does the DTA cover?

The underlying agreement covers taxes on income and capital. The protocol amends procedural and anti-abuse provisions within that scope; it does not extend the treaty to new categories of tax.

What should advisers do now, before ratification?

Use the ratification window to audit cross-border arrangements involving Switzerland and Croatia. Document commercial substance, review withholding tax positions, and flag any structures that rely on a purely formal reading of treaty conditions. Early remediation is far less costly than a competent-authority challenge after the protocol enters into force.

Source: State Secretariat for International Finance (SIF Switzerland)