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Anti-avoidance framework


What legislative and regulatory initiatives has the government taken to combat tax avoidance in your jurisdiction?

Swiss tax law includes clauses directed against abusive tax avoidance. Based on case law, the tax administrations may disregard a set-up for tax purposes if it:

  • has been chosen for the sole purpose of tax avoidance;
  • appears to be unusual and to disregard any economic reasoning; and
  • results in an actual reduction of taxes in comparison to an ordinary set-up.

Instead, the tax administrations generally base their tax assessment on the economical substance, rather than the chosen legal form of a given structure and contracts. Case law and administrative practice have developed against various specific structuring variants targeted at tax avoidance. To improve legal certainty, some frequent issues and their underlying facts have been included in the tax laws. Others are merely addressed in case law and administrative practice.

In addition, Switzerland takes part in the spontaneous exchange of information on advance tax rulings, which will affect advance Swiss tax rulings in place since 1 January 2018 and in the exchange of country-by-country reports.

Further, Switzerland was one of the first countries to adopt anti-treaty abuse measures (in 1962). Most of the general principles have been modernised and continue to be applied to deny treaty benefits to taxpayers engaging in treaty shopping. Swiss tax treaties may contain specific anti-abuse rules, such as definitions of beneficial ownership. The convention to implement tax treaty related measures to prevent base erosion and profit shifting (BEPS) will cause the applicability of a principal purpose test in accordance with the BEPS standard with regard to certain tax treaties. Other treaties are expected to be amended accordingly in the near future.

To what extent does your jurisdiction follow the OECD Action Plan on Base Erosion and Profit Shifting?

Switzerland has agreed to implement the BEPS minimum standards. The effects of this agreement are as follows:

  • Switzerland is expected to abolish tax regimes regarded as harmful under BEPS (eg, the mixed company status and holding company status) within the next few years.
  • Switzerland is taking part in the spontaneous exchange of information on advance tax rulings.
  • Switzerland has signed the Multilateral Competent Authority Agreement for the Automatic Exchange of Country-by-Country Reports and the companies concerned are to file mandatory country-by-country reports as of the reporting period beginning in 2018.
  • Switzerland has implemented mandatory arbitration based on the ‘baseball arbitration’ approach and currently conducts treaty-based arbitration procedures.
  • The Federal Council has released its dispatch to parliament, including a draft with comments on the multilateral convention to implement tax treaty related measures to prevent BEPS, which is expected to take effect on tax treaties with regard to 12 jurisdictions. Changes concern:
    • the preamble;
    • the principal purpose test;
    • qualification conflicts;
    • mutual agreement procedures; and
    • arbitration.

Specifically, with regard to qualification conflicts, Article 5 of the convention introduces a switch-over clause.

However, Switzerland is unlikely to exceed the BEPS minimum standards. For example, master and local-files are not expected to be introduced.

In order to mitigate the effect of abolishing specific tax regimes regarded as harmful under BEPS, Switzerland is likely to introduce new regimes that are in line with BEPS (eg, tax cuts on intellectual property, in particular the Patent Box and R&D super-deductions). However, the first attempt at such legislation under the project name Tax Reform III has not passed the popular vote. A new project with similar targets called the Federal Act on Tax Reform and AHV Financing (TRAF) has since been launched and could be subject to another popular vote in May 2019.

Is there a legal distinction between aggressive tax planning and tax avoidance?

Swiss tax law traditionally distinguishes between acceptable tax planning and tax avoidance. The Federal Supreme Court has developed a well-established court practice on the basis of which any unusual or artificial set-up that is not economically justified, but was implemented with the sole purpose of reducing the tax burden and would actually lead to a reduction in the tax burden if it was accepted, can be disregarded by the competent tax administrations. The exact boundaries of the concept have been continuously refined through case law.

However, the term ‘aggressive tax planning’ has not yet been used in Swiss tax legislation or case law. Eventual future input in this regard is expected to come from abroad.


What penalties are imposed for non-compliance with anti-avoidance provisions?

Generally, non-compliance with anti-tax avoidance provisions will not result in penalties for the taxpayer. Instead, in a case of tax avoidance, the facts are corrected, the taxes due are recalculated and a new tax bill is issued. In addition, interests for late payment of the taxes are due.

However, penalties may be issued:

  • if taxpayers do not disclose all of the facts relevant for a tax assessment in the relevant tax return;
  • for so-called ‘wilful’ or ‘negligent’ tax evasion; and
  • in the case of tax fraud.

Tax fraud may be assumed if, in connection with inadequate transfer prices, the annual reports filed with the competent tax administration are not in line with the legal regulations for accounting as defined by the Swiss Code of Obligations.

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