By Davide Anghileri, University of Lausanne
Switzerland’s federal tax administration on 14 November announced that it intends to stop applying special taxpayer-favourable federal allocation rules to new principal companies and Swiss finance branches from 2019.
Further, upon the entry into force of expected Swiss tax reform (called TRAF) at the beginning of 2020, the federal practices for existing principal companies and Swiss finance branches will also be abolished.
Principal companies
Under the federal practices concerning principal companies, some of the net profit allocated to the principal entity -based in Switzerland – of the group was exempt from taxation in Switzerland (international tax allocation).
Switzerland finance branches
Current federal practices allow some of the net profit allocated to a Swiss principal entity of a group to be exempt from taxation in Switzerland based on a deemed interest deduction scheme, which reduces the taxable net profit of the branch in Switzerland.
Swiss finance branches are considered Swiss financial permanent establishments of foreign companies and, as such, are responsible for lending within foreign groups.
According to this most recent government announcement, the federal rules on tax allocations for principal companies and Swiss finance branches will be abolished as a first step of the TRAF abolition of cantonal status companies.
The abolition of these federal practices does not require any legislative amendment; however, Switzerland wants to show its commitment to bring Swiss corporate tax law in line with international requirements.
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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