First, preventing a taxpayer from benefiting from the DTT CH-US results in an effective increase of the taxpayer’s final tax burden. Indeed, considering that the US income tax rate on dividends can go up to 20%, the 35% Swiss withholding tax would put the individual recipient in an excess foreign tax credit situation (because no credit is given for the remaining 15%).
The text of an international agreement is of primary importance when it comes to its interpretation. An interpretation of the DTT (taking into consideration its context and purpose) should remain compatible with the ordinary meaning of words used. Considering the clear wording of Article 4(1)(a), 2nd phrase DTT CH-US, there is no doubt that the three criteria are of an alternative nature.
Furthermore, the function of the "residence" concept is to entitle the taxpayer to treaty benefits. In the US Model Convention, US citizenship alone is sufficient to establish tax residence. Thus, subjecting treaty benefits for US citizens residing in third country to the condition that they have either a “substantial presence” or a "permanent home" or a "habitual abode" in the US is a very substantial restriction. Also, the functioning of a DTT implies that the taxpayer is a resident of one of the contracting States only. If an individual is regarded as a resident of both countries, an arbitration needs to be made in favor of the country with whom the taxpayer has the strongest ties (by applying the so-called "tie breaker rule"). Thus, the fact that these criteria should be met cumulatively when going through the said injunctions relates to their specific purpose and should not be used as a sine qua non condition to determine tax residence upon DTT CH-US.
Finally, other arguments mentioned by the FAC raise concerns with respect to the very nature of the DTTs. Such treaties are strictly bilateral and hence, the purpose of Article 4(1)(a), 2nd phrase DTT CH-US cannot be to arbitrate a residence conflict with a third country, in this case the UK. In addition, the aim of a DTT is to avoid double taxation by requesting the treaty parties to reduce their taxing rights. Should claims for a refund indeed be filed based on two different DTTs, Switzerland would comply with its international commitments if the refund corresponded to the amount set by the DTT requiring the highest reduction of Switzerland’s taxing rights. The risk of a double refund raised by the FAC therefore does not exist.