LAW RELATING TO Faculty-in-Residence and TAXES:

Under the Double Taxation Treaty between the USA and Switzerland (DTT-USA, more particularly Article 15 § 1), employment income derived by an US resident shall be taxable only in the US, unless the employment is exercised in Switzerland. If the employment is then exercised in Switzerland, such remuneration as is derived therefrom may be taxed in Switzerland. This is the usual and standard rule, subject however to an exception.

EXCEPTION

As an exception, Article 15 § 2 DTT-USA states, notwithstanding the provisions of § 1, that remunerations derived by an US resident in respect of an employment exercised in Switzerland shall be taxable only in the US if:

1. the recipient is present in Switzerland for a period or periods not exceeding in the aggregate 183 days in any twelve-months period commencing or ending in the taxable year concerned;

2. the remuneration is paid by, or on behalf of, an employer who is not a resident of Switzerland; and

3. the remuneration is not borne by a permanent establishment that the employer has in Switzerland.

The key: if the FiR spends more than 183 days in Switzerland. If so they should then be taxed in Switzerland for the salaries earned for the time they taught in Switzerland.

The solution: if you will be the FiR in Switzerland for the academic year, it is highly recommended that you:

1. Carefully track your days. When are you arriving / departing? Will you spend Christmas holidays outside of Switzerland? How long are the EFTs? Etc.

2. Carefully document your trips with tickets and other documentation.

QUESTIONS

• Q: Our stay was over two calendar years. Does the 183 days have to be in the same calendar year? Answer: no. The 183 days are counted over over a 12-month period, so the period can be over 2 calendar years (for example, 2023 and 2024). As the Swiss tax year period runs from 1 January to 31 December, you should consider any period of one year that begins or ends during this tax period (for example, from 1 August 2023 to 31 July 2024 and see if the 183-days are met under this period. If so, it would mean that you would be entitled to pay tax in Switzerland for the salaries earned between August-December 2023, but also between January-July 2024 (or April-May in your case).

• Q: How does one count days away from Swiss soil? Is the travel day counted as in-country or out-of-country? Answer: this is a very important point. Regarding the count of days, according to the DTT-USA, the method for the “days of physical presence” involves counting every day (or part of day) spent on Swiss soil. Under this method, the following days should then be included in the calculation: part of a day (even if brief), day of arrival, day of departure and all other days spent inside the State of activity such as Saturdays and Sundays, national holidays, holidays before, during and after the activity, short breaks (training, strikes, lock-out, delays in supplies), days of sickness (unless they prevent the individual from leaving and he would have otherwise qualified for the exemption and death or sickness in the family. As an exception, days spent in the State of activity in transit in the course of a trip between two points outside the State of activity should be excluded from the computation. It follows from these principles that any entire day spent outside the State of activity, whether for holidays, business trips, or any other reason, should not be taken into account. For the part of day, it means that such days are counted both in the State of activity, but also in a second state.

• Q: If I have to pay taxes in Switzerland, does this mean my taxes will be almost double? Answer: No - this is very unlikely. Pepperdine’s Swiss lawyers will work with you to prepare the communication that you will send to the Swiss tax administration. If you have to pay an amount to the Swiss tax administration, you should be able to have the full amount paid credited towards you US taxes. Accordingly, these matters should not have any economic impact on you, assuming that US taxes are higher than Swiss taxes.

EXAMPLE

Here is a real example of what a FiR was told by our Swiss tax lawyers:

In the case of Dr. [X], she should demonstrate to the Swiss tax authorities that she spent less than 183 days in Switzerland for the period relating to her teaching in Hauteville. The relevant element to that end is the physical presence on Swiss soil during this period. So, for example, if Dr. [X] only came in Switzerland on [certain date], then took a few trips outside of Switzerland (with/without the students) and finally left Switzerland on [certain date], it is possible that her total aggregate stay in Switzerland for this period is less than 183 days. If so, she should not be taxable in Switzerland. This stands of course provided that the two other conditions 2) and 3) outlined above, which we understand to be the case (the salaries of Dr. [X] were paid/borne by Pepperdine Malibu, according to the contact with Dr. [X], enclosed for your convenience). For this purpose, we would suggest to Dr. [X] to establish a detailed calendar with her days of presence in Switzerland and the days she spent abroad (in the US, Europe, or elsewhere in the world) for this period. She should be able to show airplane/train tickets (departure/return from/to Switzerland) or other documents (school documentation for trips made with the students of Hauteville across Europe without taking a plane/train or with her family, for example, because they travelled by car), etc.