The Swiss parliament on June 17, 2016, following several back and forth debates, passed the final corporate tax reform package (CTR III) to strengthen Switzerland’s competitiveness as business location. CTR III includes several notable tax reform measures related to federal and cantonal tax laws, included expected reductions to certain cantonal tax rates.
Read the decisions of the National Council in detail in our current newsletter.
The Federal Council determines when the reform measures will take effect. However, the referendum period of 100 days is first to be passed after the official publication of the legislation. If no referendum is requested, certain federal tax measures in CTR III could go into effect as early as the beginning of 2017. The cantons must then separately pass the measures related to the tax harmonization law as part of their cantonal tax legislation. Cantonal legislation changes, and any decision to reduce the cantonal corporate tax rate, would require additional approval by the cantonal electorate in case cantonal referendum would be requested as well.
A referendum opposing the federal government’s CTR III bill seems likely, as repeatedly announced by the country’s left parties. The cantonal electorate would likely have to vote on the bill in February 2017. In the event of a passing vote, the reform could take effect effective at the federal and cantonal levels starting in 2019.
Passage of CTR III marks an important milestone in Swiss tax legislation. Subject to approval by the Swiss electorate and subsequent implementation in the cantons, Switzerland will have an internationally recognized corporate tax system. The period of uncertainty is herewith ended and Switzerland can offer a stable tax and legal system outlook. The reform will have both, winners and losers. Switzerland will continue to have an internationally competitive federal tax system, independent of the decisions made by the cantons. Using the building blocks available under CTR III, each canton can design its own rules, tailored to its particular circumstances and requirements. However, inter-cantonal tax competitiveness is likely to increase due to diverging cantonal income tax rates.
Overall, CTR III’s reform measures are expected to keep Switzerland competitive globally for MNEs operating and domiciled in the country.
Despite maintaining tax-related location competitiveness in international comparison, the big winners of the reform will, however, be the Swiss SMEs. They will be able to benefit the most from the envisaged relief with the patent box, the R&D special deduction, the NID and the cantonal reductions in corporate income tax. The increase in partial taxation, as far as the cantons envisage this in connection with the introduction of the NID, should be bearable for entrepreneurs, as the overall burden for SME owners should not increase if one sets off the lower burden at company level against the additional burden at ownership level.
The reform is of pivotal importance for the medium- and long-term future of Switzerland. This awareness should be considered within the scope of the referendum and will be the decisive factor during the national referendum which seems to be an extremely likely possibility.
If you have questions, please contact your usual PwC contact person or one of PwC Switzerland´s experts in CTR III named below.