Switzerland: Swiss Upper House issues a revised proposal for a corporate tax reform ("Tax Proposal 17"), bill to go to the Lower House On 7 June 2018, the Swiss Council of States ( Upper House Stnderat Conseildes tats) issued its revised version for a corporate tax reform ("Tax Proposal 17"). It is based on the Government's proposal issued in March 2017. The purpose of this new proposal is to set the basis for new rules on Swiss corporate taxation (the last proposal having been rejected in a nationwide referendum in February 2017) and to secure and enhance Switzerland's overall attractiveness as a business location. The Upper House's version includes a notional interest deduction ("NID") for high-tax cantons as well as substantial non-tax (revenue-raising) measures. It is currently planned that the parliamentary debates on the bill will be completed by the end of September. If no referendum is requested, the first measures could enter into force at the beginning of 2019, with the bulk of the overhaul becoming effective in 2020.
Tax Newsletter June 2018
Switzerland: Update on the Tax Proposal 17
Under the Tax Proposal 17, Switzerland will repeal the current special corporate tax regimes (finance branch, mixed, domiciliary, principal and holding company). The bill further includes several measures that were already discussed in the past, but it also takes into account the criticism that contributed to the rejection in the February 2017 referendum. The measures included in the Tax Proposal 17 are the following:
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Transitional rules for companies that have been benefitting from cantonal tax regimes: such companies may release existing hidden reserves (including goodwill) in a tax-privileged way. This should allow Swiss companies to keep their current tax charge for another period of five years after sunset of the special tax regimes.
Introduction of a patent box in accordance with the OECD standard on a cantonal level: a 90% exemption is available on qualifying income (determined on the basis of the modified nexus approach), whereby software is excluded. Qualifying income is likely to include IP development by related parties within Switzerland or by unrelated third parties abroad (outsourcing). Embedded IP income is to be determined on the basis of the residual profit method. Upon entry into the patent box, past tax-deductible expenses will be included in the taxable income ("entry ticket").
Introduction of a 150% super deduction for R&D costs incurred in Switzerland on a cantonal level (based on R&D salary costs plus a mark-up).
Introduction of an optional NID for high-tax cantons (currently only the canton of Zurich would meet the contemplated requirements).
Introduction of a maximum relief limitation: The combined tax relief from the aforementioned measures may not exceed 70% (i.e. they may not reduce the taxable income to less than 30%).
The cantons may introduce relief on the capital tax levied annually on equity capital and may also grant relief on the equity related to intragroup loans.
Statutory provisions in relation to the tax consequences of companies entering (i.e. full tax-free step-up) or exiting Switzerland.
Opening up of foreign tax credit provisions for Swiss branches of nonresident companies.
The cantonal share in the federal tax revenues (currently 17%) will be increased to 21.2%.
The Tax Proposal 17 also includes further revenue-raising measures which are meant to cross-finance the reform and/or to gain wider political support:
Harmonization and increase of minimal taxation of qualifying dividends (ownership of 10% or more): at least 50% of the dividend will be subject to income taxation on the cantonal level (70% on the federal level).
Tax Newsletter June 2018
Introduction of new distribution rules for publicly listed companies: In case of retained earnings, listed companies may no longer repay first, free of tax, capital contribution reserves, but will now need to pay (at least) an equal amount of dividends subject to withholding tax (and to income tax in case of Swiss residents), if other reserves from retained earnings are available. These rules will however not apply to companies that moved to Switzerland after 31 December 2010.
Tightening of the rules regarding transpositions which apply in private restructurings involving transfers of securities to personally controlled holding companies.
0.3% increase of social security contributions paid by employees and by employers to the Old Age and Survivors' Insurance (AHV AVS), increase of the VAT share and of the federal contribution that are allocated to the Old Age and Survivors' Insurance: These measures together should provide additional funding of some CHF 2 bn to the Swiss social security system. As a consequence of the proposed increase of social security contributions, the increase of family allowances for employees that had been suggested by the Government, has now been removed from the proposal.
The cantons are still free to reduce their corporate income and capital tax rates. Although not formally part of the Tax Package 17, most cantons still envisage more or less significant reductions of the cantonal corporate income tax rates as part of their cantonal implementation projects. Some cantons are expected to offer ordinary corporate income tax rates of roughly 12 % (see table below).
Overview effective tax rates for corporate taxpayers
(Source: Dispatch of Swiss Federal Council)
Aargau Appenzell Inner Rhodes Appenzell Outer Rhodes Basel-City Basel-Country Berne Fribourg Geneva Glarus Grisons Jura Lucerne Neuchtel
Current Tax Law in %
18.6% 14.2% 13.0% 22.2% 20.7% 21.6% 19.9% 24.2% 15.7% 16.1% 20.7% 12.3% 15.6%
Reform in % 18.2% 12.7% 13.0% 13.0% 13.9% 16.4% 13.9% 13.5% 12.4% 14.0%
15.4% - 17.5% 12.3%
12.5% - 13.5%
Nidwalden Obwalden Schaffhausen Schwyz Solothurn St. Gallen Thurgau Ticino Uri Valais Vaud Zug Zurich Weighted average
Current Tax Law in %
12.7% 12.7% 16.0% 15.2% 21.4% 17.4% 16.4% 21.0% 14.9% 21.6% 21.4% 14.6% 21.2% 19.6%
Reform in % 12.1% - 12.7%
12.7% 12.1% 12.5% - 14.4% 13.1% - 16.3% 15.2% 13.4% 17.0% 12.5% 16.0% 14.0% 12.1% 18.2% 14.5%
Tax Newsletter June 2018
It appears that the current proposal has been able to gather wider political support, especially from the cantons as well as from large municipalities and from all political parties. The increases of social security contributions have however been criticized by some unions and by the employers' federation. From a constitutional point of view, the revised bill also raises certain questions as it combines unrelated matters (tax and social security) into one package.
The bill will be transferred to the National Council (lower house) for its fall session (10 to 28 September 2018). Once both chambers are in agreement and the change of law is published in the Federal Gazette, the standard 100-day deadline starts running during which 50'000 citizens may request that a popular referendum be held on the matter. If no referendum takes place, the first measures could enter into force quickly, potentially already at the beginning of 2019 (with the bulk of the reform becoming effective in 2020).
Companies and corporate groups should continue to review the impact of the new rules and whether any actions should be taken in order to ensure a smooth and tax-efficient transition to a changed posttax reform environment.
Walder Wyss is happy to assist you in this process.
The Walder Wyss Newsletter provides comments on new developments and significant issues of Swiss law. These comments are not intended to provide legal advice. Before taking action or relying on the comments and the information given, addressees of this Newsletter should seek specific advice on the matters which concern them.
Walder Wyss Ltd., Zurich, 2018
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Tax Newsletter June 2018
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