The notional interest deduction (NID) is a measure intended only for “high-tax ” cantons and will probably only apply in the canton of Zurich. The measure will be limited to cantonal and communal taxes. A notional interest deduction is granted on safety equity, i.e. the equity which in the long term exceeds the average equity required for business operations. Companies with an above-average equity ratio may thus benefit from the NID. The safety equity is calculated by deducting the core capital from the effectively available equity (NID only applies if there is a surplus). The core capital is calculated by multiplying the risk-weighted assets by a capital adequacy rate. These capital adequacy rates are still to be defined by the authorities. The NID cannot be applied to participations, non-operating assets, goodwill from the disclosure of hidden reserves or assets created for the purpose of benefitting from unjustified tax benefits. The applicable interest rate will be based on the yield on ten-year Swiss federal bonds. To the extent that safety equity is proportionately attributable to receivables of all kinds from related parties, a higher arm’s length interest rate may be applied (so-called margin taxation).
Notional interest deduction (NID)
By Olivier Eichenberger, 28.09.2018