Following several failed attempts to win support for an overhaul of the Swiss corporate tax regime, Switzerland’s Federal Council has started a new consultation on an updated package of corporate tax reforms, which it says will meet international requirements but will have less of an impact on the federal budget
In its announcement of the plans, the Swiss Federal Council said: ‘The current corporate taxation no longer meets international requirements, which is having an increasingly negative impact on Switzerland as a location.’
Earlier this year, the Federal Council’s proposed third series of corporate tax reforms failed to gain support and it is now putting forward a new version of the project called tax proposal 17 (TP17).
Under TP17, the existing preferential treatment for cantonal status companies, under which they pay only a reduced profit tax or no tax at all will be abolished.
All cantons will introduce a patent box and be able to grant research and development (R&D) tax deductions if required.
Under the new regime, profits from patents and similar rights will be separated from other profits and taxed at a lower level. The relief may not exceed 90%.
The cantons will be able to introduce additional deductions of no more than 50% for R&D. The measure is aimed at domestic R&D. The decisive expenses are personnel expenses plus a flat rate supplement.
The tax relief based on the patent box and additional deductions for R&D may not be higher than 70% of the taxable profit. The calculation also includes amortisation based on earlier taxation as a status company.
Dividend taxation for ‘natural persons’ will be increased to 70% at federal and cantonal level. Companies that relocate their headquarters to Switzerland can benefit from additional amortisation the first few years. If headquarters are relocated abroad, an exit tax will be due, as is already the case at present.
The flat rate tax credit that prevents international double taxation will be extended to Swiss operating companies of foreign companies.
The minimum requirements for family allowances will be increased and entrepreneurs will face additional tax on dividend payments.
The Federal Council estimates the proposals will impact the federal budget by around CHF750m (£604m). It will provide a temporary supplementary contribution of CHF180m for financially weak cantons from 2024 onwards.
According to current estimates, TP17 will give the cantons additional receipts of approximately CHF1.2bn of which CHF 825m will come from the increase in the cantons' share of direct federal tax.
The financial impact for the cantons and communes will depend on the cantons' tax policy decisions.
The consultation closes on 6 December.
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.
Report by Pat Sweet