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Switzerland Taking Second Shot At Corporate Tax Reform

by Ulrika Lomas,, Brussels

22 March 2018

The Swiss Federal Council has approved tax proposal 17, the package of reforms designed to bring Swiss tax rules more closely into line with international standards.

On March 21, the Council adopted the dispatch on TP17. It said that the package will make a decisive contribution to Switzerland's competitiveness, and that it wishes to quickly improve matters for domestic and foreign companies.

The main features of TP17 are as follows:

  • The abolition of the special arrangements for cantonal status companies, with the aim of ensuring that status companies will pay more tax and local small businesses less tax;
  • A mandatory patent box regime for all cantons, accompanied by additional deductions for research and development expenditure to be implemented on an optional basis;
  • A relief restriction, which includes a binding provision for the cantons that at least 30 percent of companies' profits must always be taxed before the above measures are applied; and
  • The taxation of dividends from qualified participations at 70 percent by the Swiss Confederation and at at least 70 percent in the cantons;
  • The cantons' share of direct federal tax receipts will be increased from 17 percent to 21.2 percent, and the cantons will be free to use these additional receipts in implementing the tax reforms required of them.

The Council described TP17 as "a balanced compromise." In February 2017, the Government lost a referendum on its Corporate Tax Reform 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.

The Council hopes that, at best, parliament will be able to adopt TP17 during the autumn session. If a referendum is not called, the first measures could come into force at the beginning of 2019, with the majority entering into force from 2020.

TAGS: compliance | tax | small business | business | tax compliance | corporation tax | tax thresholds | transfer pricing | Switzerland | tax breaks | dividends | tax reform | standards | research and development | BEPS

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