By Davide Anghileri, University of Lausanne
On the last day of the fall session, the Swiss Parliament finally adopted Tax Proposal 17, a tax reform aimed at making Switzerland compliant with international tax standards, thus safeguarding its role as a business location, while also ensuring sufficient tax revenue to finance public activities.
The path to passage remains uncertain, however, as Tax Proposal 17 may become subject to an optional referendum.
After publication in the Federal Gazette, most likely in early October, interested parties have 100 days to obtain at least 50,000 signatures opposing the project, which will trigger a popular referendum.
A public vote could potentially take place May 2019. If passed, the reform would enter into force in 2020. The Young Greens party has already announced their intention to launch a referendum.
Tax Proposal 17 – details
Tax Proposal 17 would repeal the cantonal tax regimes. Transition rules are introduced for companies that benefit from the existing regimes, providing companies the possibility of releasing existing hidden reserves (including goodwill) in a tax-privileged way.
Moreover, the cantons must introduce a mandatory patent box with a 90 percent exemption on qualifying income (determined on the basis of the modified nexus approach), whereby software is excluded, and a 150 percent super deduction is provided for R&D costs incurred in Switzerland, based on R&D salary costs plus a mark-up.
Cantons may also introduce an optional notional interest deduction. The reform states that the cantonal relief limitation should not exceed 70 percent.
The cantons may also introduce relief on the capital tax levied annually on equity capital and may further grant relief on equity relating to intra-group loans. Statutory provisions will be introduced relating to the tax consequences of companies entering (full tax-free step-up) or exiting Switzerland. Foreign tax credit provisions will be extended to Swiss branches of non-resident companies.
Revenue raisers
Tax Proposal 17 also includes further revenue-raising measures which are meant to cross-finance the reform and garner wider political support, like the harmonisation and increase of the minimum tax on qualifying dividends and the introduction of new distribution rules for publicly listed companies.
Finally, the reform provides for an increase in social security contributions paid by employees and employers to the old age and survivors’ insurance (AHV/AVS) program and an increase in the VAT share and federal contributions that are allocated to the AHV/AVS.
Davide Anghileri
Davide Anghileri is a PhD candidate at the University of Lausanne, where he is writing his thesis on the attribution of profits to PEs. He researches transfer pricing issues and lectures for the Master of Advanced Studies in International Taxation and Executive Program on Transfer Pricing.
Anghileri, a Contributing Editor at MNE Tax, previously worked as a policy advisor to the Swiss government on BEPS issues.
Davide can be reached at [email protected].
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