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Swiss Corporate Tax Reform III

  • Switzerland
  • Tax planning and consultancy - Briefings

14-02-2017

In Switzerland the corporate tax reform III was rejected by popular referendum at the weekend (59.1% of the votes against the reform).

The aim of the corporate tax reform III was to bring the Swiss corporate tax system in line with the international standards and the base erosion profit shifting (BEPS) project of OECD whilst safeguarding Switzerland’s attractiveness to businesses. Switzerland promised to the OECD as well as to the EU to abolish special corporate tax treatment for multinational companies. After almost 5 years of preparing for the proposed changes to tax law at the Federal level by the government and the parliament, the main idea was to retain the attractiveness of Switzerland by equalizing the tax rates for domestic and foreign profit which meant that on a cantonal level most of the Cantons would have to cut their tax rates considerably. Furthermore, the law included new incentives such as the introduction of a notional interest deduction on excess equity.

The reform was rejected as a result of different factors. The new law contained a complex system of tax reliefs, for example deductions for research and development or income from patents, interest deduction etc. which made the proposed new rules difficult to understand for non-tax experts.

Furthermore, the referendum committee argued that the new law would drive lead to a shortfall in corporate tax of almost CHF 3 billion per year and that there would be a risk of an increase in tax rates for individuals. Nobody was able to explain to the voters comprehensively what the shortfall in corporate tax would be.

For the time being the existing tax laws will therefore stay in force but do not comply with international standards. As the OECD and EU are expecting and Switzerland has promised to introduce internationally accepted tax practices in a reasonable timeframe, businesses headquartered in Switzerland or with trading operations in Switzerland should therefore expect further proposals.

Theoretically the cantons could change their corporate tax laws regardless of the vote on the federal tax regime and bring cantonal corporate taxes in line with the international standards and expectations and abolish tax privileges like holding and domiciliary companies and introduce new internationally accepted tax regimes like patent box and R&D credits.

From 2017 the international system of exchange of information within the OECD will create further uncertainty for businesses. Due to the automatic exchange of information system tax authorities will exchange tax rulings or other information with third party jurisdictions and this could trigger pressure on businesses who have sought Swiss tax rulings previously who may wish to review the rulings they have obtained.

The finance minister in charge Ueli Maurer expects that it will take at least two years to come back with a revised draft of new tax law and it will take another two years for the cantons to implement the new federal tax law.

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