Swiss Corporate Tax Reform III

Swiss Corporate Tax Reform III

Since 2007, Switzerland’s privileged taxation of holdings, mixed and domiciliary companies has been under increasing international pressure, in particular from the European Union and the OECD. The federal and cantonal governments have reacted and are currently reshaping the Swiss tax legislation. The Federal Council submitted the dispatch on the "Federal Act on Tax-Related Measures to Strengthen the Competitiveness of Switzerland as a Business Location" to Parliament in June 2015. While the Upper Chamber made a first decision on the draft legislation in the 2015 winter session, the Lower Chamber did this in the 2016 spring session. We are currently going through the procedure for reconciling the versions of the two chambers, which should be completed in June or possibly in September. The time limit for a potential referendum on the reform will then run for 100 days.


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Measures to retain Switzerland’s attractiveness as a business location

The aim of Corporate Tax Reform III is to maintain and further develop Switzerland’s position as one of the most attractive business locations worldwide, while increasing international acceptance of its corporate tax legislation and sustainably securing adequate tax revenues to finance public activities.

The focus is on providing legal certainty and security of investment while also increasing the general competitiveness of the tax system and abolishing special tax regimes.

The reform is based on the following pillars:

  • Introduction of a patent box at the cantonal level
    The proposed patent box will help retain and encourage investment in Switzerland. This will be achieved by providing an incentive to retain and commercialize existing patents (and similar rights such as, probably, non-patented discoveries of small and medium-sized enterprises and software), to develop new, innovative patented products, and also by encouraging companies to relocate related high-value jobs to Switzerland.

  • Optional introduction of input incentives
    The cantons will additionally have the option of envisaging increased deductions for research and development expenditure.

  • Step-up mechanism to reveal hidden reserves
    The proposed step-up mechanism aims to ensure planning certainty both for taxpayers and the authorities. It will establish a consistent tax treatment of companies relocating to or from abroad, when entering or leaving a license box or in terms of tax exemptions.

  • General lowering of cantonal corporate income tax rates
    Cantons are free to decrease their cantonal and communal corporate income tax rates too. Certain cantons have already announced or decided new target rates; thus Vaud has decided in a referendum to reduce its rate to 13.8%.

  • Further measures
    In connection with the parliamentary reconciliation of the different versions, further measures are being discussed; these include the range of the possible capital tax reductions on participations and patents, similar rights and intra-group loans, the introduction of an interest-adjusted corporate income tax, the introduction of a tonnage tax as well as amendments to the partial taxation of participation income (at cantonal level). However, the abolition of stamp issuance duty on equity is to be dealt with in separate draft legislation. At present it appears likely that a majority can be found in both parliamentary chambers for a limitation on the total effect of all tax measures, which would give the cantons more certainty for their financial planning.

Comparision of Cantons

Percentage of tax revenues originated from privileged taxed companies

Swiss Corporate Tax Reform III

Stay on top of the current developments regarding the Swiss Corporate Tax Reform III

After completion of the procedure for reconciling the different versions as between the Upper and Lower Chambers, the final votes are expected to be in June (or possibly September) and the new legislation could come into force by January 2017 and be implemented into cantonal law by January 2019. If a referendum is held, a delay of one to two years might have to be taken into account.

KPMG in Switzerland is closely following the efforts of decision makers from both the political and the industry perspective. Hence, our tax experts are able to regularly provide you with prompt and comprehensive in depth insights.

Should you wish to discuss and review the tax planning set-up of your group in Switzerland in the light of these changes, please contact us.

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