As part of DLA Piper’s ongoing monitoring of the evolving Swiss tax landscape, this article updates key, high-level takeaways based on recent meetings surveying ongoing developments, after the Swiss government’s September 2014 initiation of the consultation phase and release of the Corporate Tax III legislative draft. In light of the proposed changes, Switzerland is likely to remain a viable alternative as companies evaluate current and future operational and tax optimization structures.
Interested parties have been invited to provide feedback on the legislative draft by January 31, 2015. It is anticipated that the draft bill will be considered during the winter 2015 legislative session, with parliamentary discussions concluding mid-2016. The new law may enter into force between 2018 and 2020, presuming no referendum is held.
As expected, the draft legislation confirms that the cantonal holding, domiciliary and mixed companies regimes will be abolished since the practice of international profit allocation of principal companies and the treatment of Swiss finance branches may not be aligned with evolving international tax policy.
The Swiss government has proposed replacement measures to maintain Swiss competitiveness. These include:
Abolition of stamp duty: elimination of the one percent capital stamp duty.
Improved participation exemption: replacement of the current indirect exemption, which is calculated as a pro-rated multiple of Swiss tax on Swiss taxable income (exempt dividend / Swiss taxable income * Swiss tax on Swiss taxable income) by a direct exemption model permitting a deduction from the Swiss taxable base.
Stepped-up basis: step-up of built-in gains on intangible assets permitted upon bringing such assets into Switzerland (including goodwill); maximum ten year straight-line amortization; May also apply to mixed companies regimes transitioning to the ordinary tax regime.
Overall tax rate reduction: cantons may be permitted to reduce cantonal corporate income tax rates subject to the respective canton’s budget.
License box: estimated effective tax rate (ETR) of approximately 10 percent as a result of an 80 percent cantonal tax exemption on IP income (excluding trademarks); currently only Nidwalden canton has a License Box concept available.
Notional interest deduction on equity: introduction of imputed interest on so-called “excess equity” (i.e., above average levels of equity), resulting in ETR of approximately 2.77 percent (an increase of 1.33 percent from the existing regime).
In summary, these proposed measures result in Swiss holding companies remaining a viable structuring option, in particular due to the abolition of stamp duty, a potential stepped up basis upon bringing intangible assets into Switzerland, and improvement of the participation exemption.
We anticipate the proposed measures will keep Swiss holding companies on par with the Luxembourg and Dutch holding company regimes. Swiss holding companies may be in a more favorable position as the proposed measures do not currently include (and do not anticipate including) Controlled Foreign Corporation (CFC) or non-treaty holding provisions, which can be challenging in both Luxembourg and Dutch structures.
We also note that select cantons, prior to the enactment and implementation of the new regime, continue to offer viable business and tax related structuring opportunities with certain cantons continuing to offer, to qualifying entities, ten year tax exemptions at the federal level, in addition to cantonal level.