Tax Package 17: Federal Council presents basic parameters of the planned reform

At its meeting on 9 June 2017 the Federal Council confirmed the basic parameters of the planned reform of Swiss corporate taxes, which the Steering Committee sent as a recommendation to the Federal Council and already introduced in a press release on 1 June 2017. The Tax Package 17 (SV 17) has three main objectives: first the aim is to secure Switzerland’s attractive status as a business location. In addition the reform intends, in view of the changed international environment, also to continue to preserve the acceptance of the Swiss tax system. Finally SV 17 is intended to secure sufficient tax revenues at all levels. These objectives are in principle identical with those of Corporate Tax Reform III (CTR III), which was rejected by the Swiss voters on 12 February 2017 with a share of the vote of almost 60%. SV 17 will therefore be more balanced. Compared with CTR III the special rules will be drawn up more restrictively and the interests of the cities and communes will carry more weight.

Continue to read in detail in our current newsletter.

If you have questions, please contact your usual PwC contact person or one of PwC Switzerland´s experts named below.

Contacts

Andreas Staubli
Partner
Leader TLS Schweiz
Tel. +41 58 792 44 72
Send E-mail
Armin Marti
Partner
Leader CT Schweiz
Tel. +41 58 792 43 43
Send E-mail
Benjamin Koch
Partner
Leader TP and VCT
+41 58 792 43 34
Send E-mail
Daniel Gremaud
Partner
Tax & Legal
+41 58 792 81 23
Send E-mail
Claude-Alain Barke
Partner
Tax & Legal
+41 58 792 83 17
Send E-mail
Remo Küttel
Partner
Tax & Legal
+41 58 792 68 69
Send E-mail
Laurenz Schneider
Director
Tax & Legal
+41 58 792 59 38
Send E-mail

Switzerland publishes recommendations for new corporate tax proposal 17

After rejection by popular vote of the Swiss corporate tax reform III (CTR III) package in February 2017, a Swiss governmental working group comprised of federal and cantonal members (the steering body) has been working on a revised package (tax proposal 17).

The steering body on June 1, 2017, published its recommended contents for tax proposal 17. The Federal Council now will consider the draft proposal and is expected to publish a final proposal for consultation by end of June 2017. Thereafter, parlamentary discussions are expected to start in spring 2018 and entry into force is expected to take effect January 1, 2020.

Continue to read in detail in our current newsletter.

If you have questions, please contact your usual PwC contact person or one of PwC Switzerland´s experts named below.

Contacts

Andreas Staubli
Partner
Leader TLS Schweiz
Tel. +41 58 792 44 72
Send E-mail
Armin Marti
Partner
Leader CT Schweiz
Tel. +41 58 792 43 43
Send E-mail
Benjamin Koch
Partner
Leader TP and VCT
+41 58 792 43 34
Send E-mail
Daniel Gremaud
Partner
Tax & Legal
+41 58 792 81 23
Send E-mail
Claude-Alain Barke
Partner
Tax & Legal
+41 58 792 83 17
Send E-mail
Remo Küttel
Partner
Tax & Legal
+41 58 792 68 69
Send E-mail
Laurenz Schneider
Director
Tax & Legal
+41 58 792 59 38
Send E-mail

The board: duty calls

The international tax landscape in flux: what a member of the board needs to know

This brochure is designed to help you as you steer your organisation through a complex tax landscape.

With growing calls for transparency and tax justice vying with the demands of intense tax competition, the Swiss economy and the players within it face major challenges. In this brochure we review the most important tax developments in Switzerland and internationally and summarise those we consider to be very relevant for a member of the board.

We wish you stimulating reading!

Access the brochure here

Swiss parliament passes final corporate tax reform package to enhance global competitiveness

In brief
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.

 

Next steps
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.

The takeaway
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.

Corporate Tax Reform Act III from June 17, 2016

If you have questions, please contact your usual PwC contact person or one of PwC Switzerland´s experts in CTR III named below.

Contacts

Andreas Staubli
Partner
Leader Tax & Legal Services Schweiz
Tel. +41 58 792 44 72
andreas.staubli@ch.pwc.com
Armin Marti
Partner
Leader Corporate Tax Schweiz
Tel. +41 58 792 43 43
armin.marti@ch.pwc.com
Benjamin Koch
Partner
Leader Transfer Pricing and Value Chain Transformation
+41 58 792 43 34
benjamin.koch@ch.pwc.com
Daniel Gremaud
Partner
Leader Tax & Legal Romandie
+41 58 792 81 23
daniel.gremaud@ch.pwc.com
Claude-Alain Barke
Partner
Tax & Legal Romandie
+41 58 792 83 17
claude-alain.barke@ch.pwc.com
Remo Küttel
Director
Tax & Legal
+41 58 792 68 69
remo.kuettel@ch.pwc.com
Laurenz Schneider
Director
Corporate Tax
+41 58 792 59 38
laurenz.schneider@ch.pwc.com

CTR III VD

In September 2015, the modification of the Vaud income tax law (“LI”) has been voted by a large majority of the cantonal Parliament. Following said vote, two extreme left-wing parties launched a referendum against the revised bill. Last week end, the amendments of the bill have been approved by a surpringly vast majority of the voters (87% in favor of the new law).

The elements disclosed in the package that has been accepted can be summarized as follows:

1. Taxation of corporations

  • Abolishment of all privileged tax regimes granted at cantonal / communal level – i.e. mixed company tax regime as well as the holding tax status (provided in art.108, 109 LI). The abolishment of the articles will be effective as from January 1st 2019 onwards;
  • General reduction of the corporate income tax rate applicable at cantonal / communal level. The new rate will lead to a global effective tax rate (including federal, cantonal and communal levels), from January 1st 2019 onwards, of 13.79%;
  • Adaptation of the tax rates applicable to the “minimum tax” (art, 126 LI);
  • Harmonization of the capital tax. Regardless of the type of taxation applied to a company located in the canton of Vaud (art 118 LI), such entity will pay capital tax on the taxable equity at a rate of 0.06% to which communal multiplier will be applied (in general ranging from 2 to 2.5). The possibility to credit on the equity tax the income tax remains possible. This measure will enter into force from January 1st 2016 onwards.

2. Taxation of individuals

  • Rental values determination (deemed income for individuals owning real estate): modification of the lump sum deduction (increase from 20% to 30%) applicable to real estate aged over 20 years. The aim of this measure is to reduce the taxable amount resulting from owning real estate for a long period of time (measure aimed for retired persons to whom rental values represent an important income tax burden);
  • Increase of the lump sum deduction for health, life and accident insurance;

3. Taxation of individual who have the right to benefit from lump-sum taxation

Modification of the lump sum taxation principles as per the modifications voted at federal level. Such taxation principle is applied to non-Swiss resident who do not carry out any lucrative activities in Switzerland. Modifications are as follows:

  • Such regime will not be granted to persons with a Swiss passport. In the past, this was possible for a Swiss citizen to be married to a foreigner who was taking profit of this privileged tax regime and be granted with said regime. It was also possible to request such type of taxation regime for a Swiss citizen returning from abroad to Switzerland in the course of the first fiscal year following the return;
  • Requirements for the lump sum taxation will have to be met by both spouses;
  • Minimal lump sum amount to be determined as follows (maximal amount of the three values mentioned below and will be provided in art 15, al.3 LI):
    – CHF 400’000 of taxable basis;
    – 7 times the rental values of real estate owned;
    – 3 times the costs of lodging – amounts paid for living.
  • From January 1st 2016 onwards, lump sum taxation will also have to cover the wealth tax due by a lump sum taxpayer on its wealth attributable to Switzerland. In the canton of Vaud, it results in an increase of the minimal lump sum amount to CHF 415’000. If the determination as per the rental value or the lodging costs lead to a higher amount, percentage applied on such value or on such costs will be used to reflect wealth tax value in the determination of the lump sum amount.

4. Modification applicable to both corporations and individuals (admin matters only)

  • Payment of the taxes due. The system will be modified for corporations to align it on the one applied to individuals (monthly payment of corporate income tax amount – applicable for FY16 onwards);
  • Formal modifications of the Vaud tax law in order to reflect latest adjustments of the Swiss commercial code – formal requirements regarding the presentation of the financial statements of a company, etc.

5. Further modifications

The above mentioned bill does not include all elements currently under discussion at the federal level (Patent Box, Notional interest deduction, step-up mechanism). However, please note that there will be a transition clause that in case Vaud tax law has not legalized the step up, which will set up tax treatment of hidden reserves after abolishment of special regimes, or other federal tax reform elements into its Cantonal law as per 1 January 2019. Such transition clause will ensure that the introduction of the reduced tax rate and abolishment of special regimes as per 1 January 2019 in Vaud is aligned to the benefits to be introduced by federal tax reform timing wise.

A complete summary of parliamentary debates can be found on PWC newsletter.

Recent Developments – The decisions of the National Council

CTR_III_EN_MarchIntroduction
After in February 2016 the Economic Committee of the National Council (WAK-N) had set the parameters for Corporate Tax Reform III, on 16/17 March 2016 the National Council (NC) discussed the bill.
The matters resolved by the NC are predominantly identical with the positions taken by the National Council Committee (refer to our News Alert with the results of the WAK-N here).

Decisions of the National Council
Read the decisions of the National Council on the Federal Law on fiscal measures to strengthen the competitiveness of the business location Switzerland ( short Corporate Tax Reform III ) in our current newsletter.

The next steps
The reform package now goes back to the Council of States, which will deliberate on the remaining differences in the summer session. If significant differences were to remain between the two councils, the reform would again be passed to the National Council for further reconcilement in the autumn session. Otherwise the final vote could be held already in summer. Provided that a referendum were not called against it, the CTR III could in that case come into force as early as 2017 and the required implementation in the cantons as early as 2019.

If you have questions, please contact your usual PwC contact person or one of PwC Switzerland´s experts in CTR III named below.

Contacts

Andreas Staubli
Partner
Leader Tax & Legal Services Schweiz
Tel. +41 58 792 44 72
andreas.staubli@ch.pwc.com
Armin Marti
Partner
Leader Corporate Tax Schweiz
Tel. +41 58 792 43 43
armin.marti@ch.pwc.com
Benjamin Koch
Partner
Leader Transfer Pricing and Value Chain Transformation
+41 58 792 43 34
benjamin.koch@ch.pwc.com
Daniel Gremaud
Partner
Leader Tax & Legal Romandie
+41 58 792 81 23
daniel.gremaud@ch.pwc.com
Claude-Alain Barke
Partner
Tax & Legal Romandie
+41 58 792 83 17
claude-alain.barke@ch.pwc.com
Remo Küttel
Director
Tax & Legal
+41 58 792 68 69
remo.kuettel@ch.pwc.com
Laurenz Schneider
Director
Corporate Tax
+41 58 792 59 38
laurenz.schneider@ch.pwc.com

New Swiss corporate tax reform positions introduced for parliamentary discussion

In brief
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.

 

Next steps
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.

The takeaway
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.

 

Contacts

Andreas Staubli
Partner
Leader Tax & Legal Services Schweiz
Tel. +41 58 792 44 72
andreas.staubli@ch.pwc.com
Armin Marti
Partner
Leader Corporate Tax Schweiz
Tel. +41 58 792 43 43
armin.marti@ch.pwc.com
Benjamin Koch
Partner
Leader Transfer Pricing and Value Chain Transformation
+41 58 792 43 34
benjamin.koch@ch.pwc.com
Daniel Gremaud
Partner
Leader Tax & Legal Romandie
+41 58 792 81 23
daniel.gremaud@ch.pwc.com
Claude-Alain Barke
Partner
Tax & Legal Romandie
+41 58 792 83 17
claude-alain.barke@ch.pwc.com
Remo Küttel
Director
Tax & Legal
+41 58 792 68 69
remo.kuettel@ch.pwc.com
Laurenz Schneider
Director
Corporate Tax
+41 58 792 59 38
laurenz.schneider@ch.pwc.com

Presentation of treasury shares attributable to contribution reserves under the new accounting law

  • The new accounting law is effective since 1 January 2013. However, due to transition rules, most companies apply it for the first time as of business year 2015 which is usually being closed these days/weeks.
  • One of the main changes relates to the presentation of treasury shares (i.e. own participation rights). The new accounting rules require that treasury shares are presented separately as a negative item in shareholders’ equity (art. 959a para. 2 Swiss Code of Obligations, SCO). This provision also applies to treasury shares for which capital contribution reserves represented the freely disposable equity as a prerequisite for their acquisition in accordance with art. 659 para. 1 SCO.
  • As you may recall, the capital contribution principle was introduced to the Swiss tax system by Corporate Tax Reform II and became effective 1 January 2011.
  • On 9 September 2015 the Swiss Federal Tax Authorities have published Circular Letter No. 29a covering aspects of the capital contribution principle in the context of the new accounting rules. According to section 4.2.3 of this Circular Letter, treasury shares attributable to capital contribution reserves have to be presented as negative item within the statutory capital reserve in order to qualify for a favorable tax treatment (i.e. no income tax and withholding tax consequences upon the cancelation of the participation rights or in case of an expiry of the deadlines referred to in art. 4a of the Swiss Withholding Tax Act).
  • These different views on how to present treasury shares attributable to capital contribution reserves – accounting view: separate negative item as the last line item within shareholders’ equity versus tax view: negative item within the statutory capital reserve – would have led to a contradictory result. In order to resolve the issue, EXPERTsuisse liaised with the Swiss Federal Tax Authorities and an acceptable presentation of treasury shares attributable to capital contribution reserves has been agreed. The agreed solution is published in German and French in the members-area of the EXPERTsuisse website (cf. <Fachexpertise/Fachliche Verlautbarungen/Q&A/Q&A New Accounting Law (01-2016)>, pages 24 – 26). Further, the Swiss Federal Tax Authorities have published on 18 January 2016 a summarized version in German, French and Italian as new attachment 2 to Circular Letter 29a (cf. https://www.estv.admin.ch/estv/de/home/direkte-bundessteuer/dokumentation/kreisschreiben.html).
  • In a nutshell, the amount of treasury shares attributable to capital contribution reserves is contained in “Statutory capital reserve/Reserves from capital contributions” and as negative item presented under “Own participation rights against reserves from capital contributions”.
  • For your convenience, please find below a comparison between the presentation of treasury shares attributable to capital contribution reserves under the former and the new accounting law (the latter according to the solution as agreed with the Swiss Federal Tax Authorities). The example is based on the following assumptions:
  •     At the date of acquisition of the treasury shares, the company had sufficient capital contribution reserves which had been allocated to this transaction.
  •     The entire amount of capital contribution reserves is allocated to treasury shares (there is no residual amount of capital contributions reserves).

Chart[please click to enlarge]

  • Should a company for example dispose over a total amount of capital contribution reserves of 120, of which 80 were according to the former accounting law reflected under “Reserves from capital contributions” in the section “Legal reserves” and 40 were reflected under “Reserves from capital contributions” in the section “Reserves for treasury shares”, these capital contribution reserves of 120 would under the new accounting law have to be presented as follows:
  • Line item: “Reserves from capital contributions” in section “Statutory capital reserve” would have to show 120. Line item: “Against reserves from capital contributions” in the amount of – 40 in section “Own participation rights” would remain unchanged.
  • It should be noted that from a Swiss tax authorities perspective, it is important that all “Reserves from capital contributions”, i.e. the full 120, are presented in one single line item in the section “Statutory capital reserve” (i.e. the Swiss Federal Tax Authorities do not allow sub-accounts).

Recommendation:

  • Please liaise with your main PwC contact persons in relation to the preparation of your accounts and in particular to the presentation of your treasury shares attributable to capital contribution reserves or directly contact the persons below.

 

Stefan Schmid
Partner
Tax & Legal Services
Office: +41 58 792 44 82
Main: +41 58 792 44 00 stefan.schmid@ch.pwc.com PricewaterhouseCoopers AG Birchstrasse 160 | Postfach |
8050 Zürich
Dr. Remo Küttel
Director
Tax & Legal Services
Office: +41 58 792 68 69
Main: +41 58 792 68 00 remo.kuettel@ch.pwc.com PricewaterhouseCoopers AG Grafenauweg 8 | Postfach |
6304 Zug
Dr. Sarah Dahinden
Senior Manager
Tax & Legal Services
Office: +41 58 792 44 25
Main: +41 58 792 44 00 sarah.dahinden@ch.pwc.com PricewaterhouseCoopers AG Birchstrasse 160 | Postfach |
8050 Zürich

International Transfer Pricing 2015/16

There have continued to be significant changes in the area of transfer pricing since our prior edition, with several new countries implementing either formal or informal transfer pricing documentation requirements and significant regulatory changes in many other countries over the past twelve months. Most significantly, the deliverables released as part of the OECD’s Base Erosion & Profit Shifting (BEPS) Action Plan have resulted in the need for companies to re-evaluate and reconsider their transfer pricing strategies in light of the proposed new guidance.

International Transfer Pricing 2015/16, now in its 15th edition is an easy to use reference guide covering a range of transfer pricing issues in nearly 100 territories worldwide. It explains why it is vital for every company to have a coherent transfer pricing policy which is responsive to the rapidly changing markets in which they operate. The book not only shows why sound transfer pricing policies should be developed, but also why such policies need to be re-evaluated regularly. It offers practical advice on a subject where the right amount of effort can produce huge benefits in the form of a competitive and sustainable tax rate, and leave the company well positioned to defend against aggressive tax audits.

You can also download your customised PDF from the global site.

Please feel free to get in touch with your Swiss Transfer Pricing team or e-mail me

Swiss Corporate Tax Reform III: how Switzerland will remain attractive

On 5 June 2015, the Swiss Federal Council published Corporate Tax Reform III for debate in parliament. The legislation is designed to boost trust in Switzerland and strengthen its position as a tax domicile. If parliament reinstates the notional interest deduction, Switzerland will be able to retain its place among the most attractive locations for doing business.

Topics of this article

  • Reform project: background and current status

  • Important reform for Switzerland

  • The reforms in detail 

Read more here.

Summary

Dating back more than thirty years, the current rules on corporate taxation – particularly the tax regimes that are due to be abolished – have been a major factor in Switzerland’s success. Plans to do away with these rules have created a great deal of legal uncertainty, raising the question of how competitive Switzerland will remain in terms of attracting international businesses.

This uncertainty came to an end when the CTR III reform package was released for parliamentary debate on 5 June 2015. Provided that parliament re-adopts the notional interest deduction, the package will contain the reform elements necessary to ensure Switzerland remains among the most attractive tax jurisdictions for corporations.

Given that Swiss public finances are in relatively good shape by international standards and that the will exists on the part of parliamentarians and the general public to adopt and implement CTR III, Switzerland will be able to preserve its reputation as a reliable, long-term, business-friendly location and an attractive tax jurisdiction for international companies. The new corporate tax legislation will help ensure the continuing success of the Swiss model in the coming decades.