Today, the Federal Council adopted the dispatch on the Corporate Tax Reform Act III. The reform aims to strengthen Switzerland as a business location, focusing on innovation, value creation and jobs. The proposed measures are compatible with the current international standards and will increase legal and planning certainty for companies.
Based on the consultation findings, the Federal Council defined the parameters for the third series of corporate tax reforms (CTR III). The dispatch on the “Federal Act on Tax-Related Measures to Strengthen the Competitiveness of Switzerland as a Business Location” is now available. It includes both tax policy and fiscal policy measures. Any adjustment to cantonal profit tax rates is not part of the reform, as only the cantons have the authority to make such decisions.
Based on the statement of the Federal Council, the reform will give corporate taxation a foundation that is in line with the current international standards. It will ensure a competitive environment for companies operating in Switzerland, particularly for activities associated with a high degree of innovation, value creation and jobs. It respects the cantons’ tax and fiscal policy autonomy while guaranteeing that inter-cantonal competition remains balanced and that the financial impact is bearable for the Confederation, the cantons and the communes.
Tax policy measures
The following tax policy measures are proposed by the Federal Council:
- Abolishment of the cantonal tax statuses for holding, domicile and mixed companies as well as of the principal company taxation and the finance branch regime
- Introduction of a patent box for cantonal taxes (preferential treatment for revenue from patents and similar rights associated with research and development in Switzerland – i.e. Nexus Approach).
- Option for the cantons of envisaging increased deductions for research and development expenditure (input promotion)
- Option for the cantons to introduce targeted capital tax reductions (i.e. lower taxation of patents and similar rights and participations)
- Further measures as e.g.: uniform rules for the disclosure of hidden reserves (step-up); abolishment of the issue tax on equity capital; increase of the tax base on dividends from major participations (i.e. at least 10%) of individuals to 70%
Some measures (discussed in the consultation) are not proposed by the Federal Council but still mentioned in the dispatch, e.g:
- Notional Interest Deduction
- Amendments to the participation deduction
- Tonnage Tax
Fiscal policy measures
Furthermore, the federal council proposes fiscal policy measures. The Confederation intends to use equalization measures also in the future to ensure a balanced distribution of the burden between the Confederation and the cantons and create fiscal policy leeway for any profit tax reductions in the cantons. The current fiscal equalization has to be adapted to the new tax policy framework.
In addition, the cantons’ share of direct federal tax is to be increased by 3.5 percentage points, bringing it from 17% at present to 20.5%.
It is estimated that the reform will have an annual financial impact of CHF 1.3 billion on the federal finances (not considering any effects from the influx or exodus of companies or the shifting of corporate functions).