Federal Council sets parameters for dispatch of the Swiss Corporate Tax Reform III

Introduction

Today, the Swiss Federal Council published the main parameters/measures which are to be addressed in the Swiss Corporate Tax Reform III (CTR III) proposal, which is to be submitted to the Swiss Parliament in June 2015.

Summary of the Swiss Federal Council’s communication

The parameters, published by the Swiss Federal Council today, are based on the results of the consultation on the draft CTR III bill. The draft bill was published in September 2014 and contained a variety of new measures with the objective of maintaining and fostering Switzerland’s competitiveness as a business location, while at the same time resolving the tax controversy with the EU and also taking into account international tax developments.

Based on the findings of the consultation process, the Swiss Federal Council has given instructions to make various adjustments to the draft CTR III bill published in September 2014. The parameters set out by the Swiss Federal Council can be summarised as follows:

  • Abolition of certain current tax rules including cantonal holding, administrative and mixed company status.
  • Introduction of a Swiss Patent Box at cantonal level. This measure is subject to modifications, taking into account the latest international developments at OECD level.
  • Optional introduction of an input tax super deduction for research and development costs at cantonal level.
  • Reduction of the annual cantonal capital tax.
  • Abolition of issuance stamp tax on equity capital.
  • Introduction of comprehensive rules regarding the treatment of hidden reserves and goodwill (“step-up”).
  • Harmonisation of partial taxation rules on dividend income for private individuals.
  • Reduction of cantonal income tax rates at the discretion of the individual canton.

The Swiss Federal Council decided not to further pursue the following measures, which were part of the draft CTR III bill:

  • A capital gains tax on privately held securities by individuals shall not be introduced.
  • The proposed changes to the participation exemption and the suggested changes regarding tax loss carry forward rules will no longer be pursued.
  • As the introduction of an interest-adjusted profit tax (i.e. notional interest deduction – NID) was controversially discussed during the consultation phase and a majority of the cantons were against the introduction of NID, the Swiss Federal Council has decided, for now, to exclude the NID proposition from the reform proposal.

In addition, the Swiss Federal Department of Finance (FDF) is requested to review whether a tonnage tax should be introduced. Furthermore, the Swiss Federal Council proposed an adaptation of the fiscal equalisation rules – the Federation will participate by absorbing half of all costs which may be triggered by the cantons when reducing their cantonal income tax rates.

Next steps

As a next step, the Swiss Federal Council has instructed the FDF to prepare a dispatch of the CTR III law by June 2015 for debate in the Swiss Parliament. Due to the Swiss political process, it can be expected that the new reform measures will not come into effect before 2018 or 2020.

PwC comments

The parameters set out by the Swiss Federal Council are certainly a step in the right direction towards regaining certainty for businesses in terms of their likely future tax situation in Switzerland. They will also help to maintain Switzerland’s position as an attractive business location and demonstrate that Switzerland is keen to comply with the new international taxation standards. However, for the future prosperity of Switzerland as business location, we are of the opinion that NID should once again be made part of the CTR III law. It seems that a number of cantons have not (yet) recognised the fundamental importance of this measure for Switzerland. It will therefore be important to convince political stakeholders still further (i.e. representatives of the Swiss Parliament) that the NID measure should be re-introduced.

For any questions, please contact the following Corporate Tax III Champions at PwC Switzerland:

Armin Marti
Leader Corporate Tax Switzerland
Tel: +41 58 792 43 43
armin.marti@ch.pwc.com

Andreas Staubli
Leader Tax & Legal Services Switzerland
Tel: +41 58 792 44 72
andreas.staubli@ch.pwc.com

Published by

Armin Marti

Armin Marti
PwC
Birchstrasse 160
Postfach, 8050 Zurich
+41 58 792 43 43

Armin leads the PwC Swiss Corporate Tax practice. He holds a Master in Business Administration from the University of St. Gallen, Switzerland (lic. oec. HSG) and has qualified as a Swiss Certified Tax Expert.

As a member of the global PwC International Tax Services (ITS) Network and former country leader for ITS, Armin has gained extensive experience in leading complex cross-border tax projects.

Armin Marti has over 29 years experience in providing international tax consultancy for large quoted and privately held Swiss and foreign multinationals. He advises his clients on tax effective set-up of legal entity structures including domestic and cross-border tax restructurings, tax effective group financing, tax efficient profit repatriation, acquisitions and divestitures plus tax effective business models.