On 12 February 2017 the Swiss electorate rejected the Corporate Tax Reform III (CTR III). The Swiss Federal Council then responded by initiating the consultation procedure of the Tax Proposal 17 (TP17) at their meeting on 6 September 2017, and this consultation procedure ended on 6 December 2017.

For Switzerland, the urgent need for action has been intensified due to the international trend of decreasing corporate taxes. At its meeting on 31 January 2018, the Federal Council determined the key points of the TP17 reform based on the consultation procedure. This newsletter briefly outlines the developments and key measures of this proposal.

The tax law privileges of cantonal status companies (holding companies, domiciliary companies and mixed enterprises) are not in conformity with current international demands. Pressure from abroad has had negative effects on Switzerland’s attractiveness as a business location and therefore a reform in corporate tax law is urgently needed to maintain its competitiveness. Switzerland made a commitment to the EU to put an end to cantonal status companies and as a countermeasure, the Federal Council suggested a mandatory introduction of the Patent Box on cantonal level, as well as an optional introduction of additional deductions for research and development (R&D reduction). With the introduction of the Patent Box, which meets international requirements, upon application, net profits incurred from patents and comparable rights will be taxed with a reduction of up to 90%. The additional R&D reduction shall not exceed 50% of the eligible R&D expenses, and can only be applied to those created in the country.

• In addition to the above two crucial measures, the following will also be put into place:
• Discharge limitation for the special arrangement Patent Box and additional R&D reduction. Subsequently, a company must tax at least 30% of its profit before applying the special provision and no loss may occur out of the application of it.
• Retention of the tax neutral appreciation of hidden reserves (Step-up), which were created under previous law or upon arrival to Switzerland.
• Increase in the minimal dividend taxation to 70% for individual persons on a national level, and at least to 70% on a cantonal level.
• Increase in the cantonal share of direct federal tax from 17% to 21.2%.
• Facultative discharge of capital tax. Cantons can take appropriate measures to maintain the appeal of their respective locations.
• Increase of CHF 30 in minimum standards of federal government family allowances to CHF 230 total. In canton Bern today these higher child benefits are already being paid out.

General cantonal tax rate reductions are not part of TP 17. With regard to this, cantons may decide themselves how they will set their tax rates. Canton Bern wants to lower taxes on income between 2019 and 2022, from 21.64% today down to 16.37%. It is anticipated that the cantonal parliament is going to advise on tax law revision in a second meeting of the March 2018 session.

The TP 17 includes moreover, a change in transference acts. New is that all sales of participatory rights to a company in which the contributor has at least 50% participation will be taxed insofar as the return received exceeds the sum of the face value and capital contribution reserves. This also applies when multiple persons make the transfer together and meet the 50% limit. Today’s law enables tax-free capital gains with a sale of less than 5% of self-controlled companies, and this will no longer possible.

Finally, the SV17 intends to extend flat-rate tax credits on Swiss production sites of foreign companies.

With this law the applicable ordinances concerning the reduced taxation of profits on patents and comparable rights, as well as those having to do with financial resources and burdens, will be determined in the consultation procedure.

The Federal Council would like to formulate an official message on TP 17 by the end of March so that the parliamentarian consultation on this matter can be completed in the fall 2018 session. The response to this then from the cantons, political parties and professional associations promises that an interesting debate is ahead of us. Numerous criticisms as well as proposed amendments exist. In our opinion, parliament is going to have a tough time finding an amicable resolution, and one that is capable of gaining majority support. In the absence of any referendum the first measures of TP17 could go into effect at the beginning of 2019, and the main part of the measures as of 2020. In view of the rapidly changing international pressure we are experiencing, the Federal Council considers completion of this reform quite urgent.

A more exact analysis of the known measures that companies are to apply will be made once the definitive version of TP17 is available.

We are delighted to announce, that as of 1st September 2017 Mrs Monika Hess, Master of law, has joint our company Omnitax AG Business and Tax Law as a new employee.

Read more …

We are delighted to announce, that as of 1st August 2017 Mr. Arian Maleta, Attorney at law and Swiss certified Tax Consultant, has been appointed as a new partner in our company Omnitax AG Business and Tax Law.

Read more …