On September 6 2017 the Swiss government published a new detailed draft for a corporate tax reform (Tax Proposal 17). The purpose of this new draft is to set the basis for new rules on corporate tax (the last proposal having been rejected in a nationwide referendum in February 2017) and to secure Switzerland's overall attractiveness as a business location.
Under the new draft, Switzerland will repeal the following special corporate tax regimes:
- finance branch;
- principal; and
- holding company.
The draft includes several measures that have been discussed in the past, but it also addresses the criticism that contributed to the rejection in the February referendum. The measures in Tax Proposal 17 include:
- transitional rules for companies that have benefited from cantonal tax regimes (such companies may release existing hidden reserves (including goodwill) in a tax-privileged way);
- the introduction of a patent box at a cantonal level, in accordance with the Organisation for Economic Cooperation and Development standard;
- the introduction of a 150% super deduction for research and development (R&D) costs incurred in Switzerland at a cantonal level (based on R&D salary costs, plus a mark-up);
- the introduction of a maximum relief limitation (the combined tax relief may not exceed 70% (ie, the taxable income may not be reduced to less than 30%));
- the option for the cantons to introduce relief on the capital tax levied annually on equity capital; and
- statutory provisions in relation to the tax consequences of companies entering (ie, full tax-free step-up) or exiting Switzerland.
Compared with the bill that was rejected in February, there are some notable differences:
- the notional interest deduction was dropped, even though the Canton of Zurich has repeatedly requested that such a measure be retained;
- the maximum relief limitation was brought down from 80% to 70%;
- there is a now a clear definition of the R&D super deduction; and
- the cantonal share in the federal tax revenues (currently 17%) will be increased to 20.5%, rather than 21.2%.
As expected, the new bill also includes further measures which are meant to cross-finance the reform or gain wider political support:
- harmonisation and increase of minimal taxation of qualifying dividends (ownership of 10% or more) – at least 70% of the dividend will be subject to income tax;
- tightening the rules regarding transpositions (which apply in private restructurings involving transfers of securities to personally controlled holding companies); and
- increase of family allowances for employees.
The cantons remain free to reduce their corporate income and capital tax rates. Although not formally part of Tax Proposal 17, more or less significant reductions of the cantonal corporate income tax rates are envisaged by the cantons as part of their cantonal (implementation) projects.
The consultation procedure is open until December 6 2017. A formal proposal from government to Parliament and the first subsequent parliamentary deliberations may be expected in the course of the first half of 2018. The corporate tax reform might be enacted in 2020 (after a potential referendum in 2019).
It is advisable to monitor the changing tax environment against the background of Tax Proposal 17 and other international developments (eg, corporate transparency initiatives, EU blacklisting, implementation of base erosion and profit shifting measures, mandatory controlled foreign companies rules in the European Union and exchange of information).
For further information on this topic please contact Maurus Winzap or Robert Desax at Walder Wyss & Partners Ltd by telephone (+41 58 658 58 58) or email (firstname.lastname@example.org or email@example.com). The Walder Wyss website can be accessed at www.walderwyss.com.
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