BEPS and the “No” to the Swiss Corporate Tax Reform III

in Tax, 17.02.2017

The Swiss people voted “No” on the proposed Corporate Tax Reform III on 12 February 2017. What does this mean for Switzerland’s position on and implementation of BEPS? Generally speaking, there is very little or no direct impact, and in particular Action 13 with CbCR is not affected at all.

The voting of the Swiss population on the proposed Corporate Tax Reform III (CTR III) didn’t prove successful for now, and hence the transition of Switzerland’s tax system, that is under international pressure, into a new, equally attractive and sustainable but widely accepted tax system will take a bit longer than expected. The next few months will provide clarity on a new attempt and its schedule.

No uncertainty about BEPS implementation being on track

In the meantime, business in Switzerland will have to once again deal with some uncertainty on the future of the Swiss tax landscape. But there is no uncertainty regarding the implementation of the BEPS Actions in Switzerland.

The implementation of the minimum standards as set out in the “inclusive framework for the implementation of the BEPS package” as signed up by Switzerland and covering harmful tax practices (Action 5), tax treaty abuse (Action 6), country-by-country reporting (Action 13) as well as improvements in cross-border tax dispute resolution (Action 14) is generally still on track.

Legislation for CbCR to become effective in 2017

For implementing CbCR, Switzerland must get the corresponding new law (Swiss Federal Act on the International Automatic Exchange of Country-by-Country Reports of Multinationals “ALBA-Gesetz”) to become effective, ideally in 2017. For that, the law needs to now pass the parliamentary debates and ride the referenda period without becoming subject to referendum.

Harmful tax practices, tax treaty abuse and improvements in dispute resolution

The implementation and application of Action 5 on harmful tax practices includes the abolishment of current Swiss tax regimes such as the cantonal holding privilege, the mixed company regime, etc. as well as the implementation of new but acceptable BEPS “proof” practices like a patent box as foreseen by the proposed CTR III. But although CTR III was rejected on 12 February 2017, the abolishment of perceived “harmful tax regimes” will likely become reality. Whether these applications of BEPS Action 5 will happen within the timeframe communicated in preparation of CTR III or with a certain delay is again subject to clarification as to the how and when a new draft CTR III will be ready.

The implementation of measures, including new or further measures against tax treaty abuse as dealt with by Action 6, is subject to the application of corresponding new guidance with the negotiation of double tax treaties as well as the review of any application of a “principle purposes test” for particular cases. The implementation of Action 14 in Switzerland has to follow the timing and pulse of the OECD.

There will soon be more to report on the new schedule for a second attempt at CTR III as intense discussions and analyses of the voting as well as what’s needed to achieve mutual agreement amongst all major political forces within Switzerland’s direct democracy are ongoing.

Meanwhile, BEPS proceeds – also in Switzerland.



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