October 2 2018

Federal parliament adopts corporate tax reform 17

Source: IBFD Tax Research Platform News

On 28 September 2018, the parliament adopted the bill for corporate tax reform (Tax Proposal 17). The Council of States (the upper house of the parliament) had approved the dispatch on Tax Proposal 17 on 7 June 2018 (http://www.diacrongroup.com/en/tax-news/council-of-states-adopts-tp17/see ).

The Tax Proposal 17 contains the following key measures:

  • abolition of the arrangements for cantonal status companies;
  • mandatory introduction of a patent box on cantonal level: upon request of the taxpayer (and provided certain conditions are met), the profits derived from patents and similar intellectual property rights are reduced by 90% (the cantons may apply a lower percentage);
  • introduction of an additional (optional) deduction of up to 50% for research and development (R&D) expenditure on personnel (plus a markup for other costs (35%) and for outsourced, domestic R&D (80%)); and
  • introduction of a notional interest deduction on excess equity financing up to an arm's length interest rate.

At least 30% of companies' profits must always be taxed before these measures – the patent box, additional R&D expenses and notional interest deductions – are applied. The cantons may, however, apply a higher percentage.

Further measures include:

  • the introduction of a tax neutral step-up upon immigration, the transfer of business operations to Switzerland or the ending of a tax exemption;
  • at the Federal level, dividends from qualifying participations are currently partially exempt from taxation: 60% of the dividend is taxed where the shares are held as a private asset, and 50% is taxed where the shares are held as a business asset. This will be increased to 70% for both cases. At the cantonal level, a similar regime will be introduced with a minimum percentage of 50%;
  • the cantons may apply lower wealth tax rates on patents and similar intellectual property rights held by individuals as business property;
  • the cantons may apply lower capital taxes on qualifying investments (of at least 10%), patents and intra-group loans; and
  • the cantons' share of direct federal tax receipts will be increased from 17% to 21.2%.

The bill is subject to a people's referendum. If a referendum is not called, the first measures could come into force from 2020.