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Anti-avoidance framework

Regulation

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. 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 strange 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 from January 1 2018 and in the exchange of country-by-country reports.

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

Switzerland has agreed to implement the base erosion and profit shifting (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.
  • Newly signed double taxation agreements are expected to include a principal purpose clause and an arbitration 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 Tax Proposal 17 has since been launched.

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

In principle, the law does not distinguish between aggressive tax planning and tax avoidance. Instead, the Federal Supreme Court has developed a well-established court practice on the basis of which any unnatural set-up that is not economically justified, but was implemented with the sole purpose of reducing the tax burden and led to a reduction in the tax burden, can be disregarded by the competent tax administrations. While this provision is likely to be applicable in a case of tax avoidance, it may also be applicable in a case of aggressive tax planning. However, the expressions as such are not used in the tax law.

Penalties

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 unlawful 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 Swiss Code of Obligations

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