Non-resident individuals and legal entities. The following individuals who have neither their domi- cile nor usual abode in Switzerland and legal entities who have neither their place of incorporation nor place of effective management in Switzerland and are, there- fore, not resident for Swiss domestic tax purposes, are taxed by way of the source taxation procedure if they receive Swiss-source income: (1) employees, (2) interna- tional transport employees, (3) artistes, sportsmen and lecturers, (4) members of boards of directors, (5) xxxx- xxxx creditors, (6) recipients of pensions from an employer or a pension fund based on previous public service, and (7) recipients of payments from Swiss pri- vate pension funds.48 Tax treaties may limit these taxing rights of Switzerland.49 Particularly in respect of artistes 35. Other income is taxed by way of the ordinary taxation procedure.
Non-resident individuals and legal entities. Source taxation is an established concept of interna- tional tax law. According to ECJ case law, the situations of residents and non-residents are not, in general, com- parable. The Swiss-source taxation procedure for indi- viduals and legal entities who are not resident for Swiss domestic tax purposes generally complies with treaty law and the AFMP.207 In the author’s view, at the level of the objective tax benefits, the Swiss-source taxation pro- cedure for non-resident individuals and legal entities, however, constitutes an indirect discriminatory measure prohibited, in principle, by Art. 9 (employed persons), Art. 15 (self-employed persons) or Art. 19 (provision of services) of Annex I of the AFMP. With regard to allowances for professional expenses, employees and employees in international transport are generally taxed under the same source taxation procedure as resident foreign employees without a permanent residence per- mit, but without the subsequent ordinary taxation pro- cedure. Accordingly, they are discriminated against in the same way. The members of boards of directors are also discriminated against, as they are not entitled pro- fessional allowances. In contrast, the source taxation procedure for artistes, sportsmen and lecturers should comply with the principle of equal treatment in the AFMP, as it grants the deduction of effective profes- sional expenses. The ECJ held in Asscher208 and Ger- ritse209 that non-residents and residents are in a compa- rable situation with regard to the progressivity rule. Accordingly, the application of a higher rate of tax to the income of certain non-residents than that that applies to those who are resident or treated constitutes indirect discrimination prohibited by EC law. 204. Federal Constitution of 18 December 1998, SR 101. 205. Federal Government, Technical Explanations of 23 June 1999 to the Sec- toral Agreements between Switzerland and the EC, Federal Journal 1999, Para. 274.32.
