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Switzerland Consulting On New Corporate Tax Reforms

by Ulrika Lomas, Tax-News.com, Brussels

07 September 2017


The Swiss Federal Council has launched a consultation on a new package of corporate tax reforms, drawn up in the wake of a previous failed attempt to overhaul the system.

The Federal Council said that the tax proposal 17 (TP17) package will help make Switzerland a more appealing location, ensure that companies continue to benefit from a competitive tax framework, and have less of an impact on the federal budget than its previous proposals.

In February, the Government lost a referendum on its Corporate Tax Reform III (CTR III) package, which would have abolished a range of special tax arrangements for status companies in an effort to meet evolving international tax standards on harmful tax competition. It swiftly convened a steering group to draw up new proposals.

The TP17 package was presented by the steering committee to the Federal Council in June. The Council largely accepted the committee's recommendations and asked the Federal Department of Finance to prepare a consultation draft.

According to the Federal Council, Switzerland's current system for corporate taxation "no longer meets international requirements, which is having an increasingly negative impact on Switzerland as a location."

TP17 contains the following measures:

  • The special arrangements for cantonal status companies, under which they pay only a reduced profit tax or no tax at all, will be abolished;
  • The cantons will be required to introduce patent box regimes, under which profits from patents and similar rights will be separated from other profits and taxed at a lower level, with the relief to be no more than 90 percent;
  • The cantons will be given the option of introducing additional tax deductions of up to 50 percent for research and development activities;
  • The dividend taxation for "natural person" will be increased to 70 percent at federal and cantonal level;
  • The cantons' share of direct federal tax receipts will be increased from 17 percent to 20.5 percent;
  • The cantons will be permitted to include the capital associated with financial interests, patents, and similar rights at a reduced level in the capital tax calculation;
  • Companies that relocate their headquarters to Switzerland will be able to benefit from additional amortization in the first "few" years of operations;
  • Swiss operating companies of foreign companies will be entitled to the flat-rate tax credit, which prevents international double taxation; and
  • The minimum requirements for family allowances will be increased by CHF30.

The Federal Council estimates that TP17 will impact the federal budget by around CHF750m (USD787.1m). It will provide a temporary supplementary contribution of CHF180m to financially weak cantons from 2024.

The consultation will close on December 6. The Federal Department of Finance intends to submit the proposals to parliament in spring 2018. The earliest that TP17 can enter into force is 2020.

TAGS: compliance | tax | investment | patents | tax compliance | interest | budget | corporation tax | tax credits | multinationals | tax rates | Switzerland | tax breaks | tax reform | standards | research and development | BEPS

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