The dispatch of the Corporate Tax Reform III represents the next step in one of Switzerland’s most important legislative projects of the next few years. The measures proposed go in the right direction, but shall be further amended to sustainably secure the competitiveness of Switzerland.
In the dispatch on the “Federal Act on Tax-Related Measures to Strengthen the Competitiveness of Switzerland as a Business Location”, released 5 June 2015, the Federal Council defined the parameters for the third series of corporate tax reforms (CTR III).
The reform will give corporate taxation a foundation that is in line with the current international standards. It will provide the basis for 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 short-term financial impact is bearable for the Confederation, the cantons and the communes.
Tax policy measures proposed by the Federal Council include:
- Abolishment of the cantonal tax statues 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
- Option for the cantons of envisaging increased deductions for research and development expenditure (input incentives)
- Option for the cantons to introduce targeted capital tax reductions
- Further measures, such as: uniform rules for the disclosure of hidden reserves in the case of migration into Switzerland and as a transnational measure for certain abolished regimes (step-up); abolishment of the issue tax on equity capital; increase of the individual’s tax base of dividends from major participations
An important first step – but more to come
The orientation on internationally accepted standards certainly is the appropriate way forward. I welcome the promotion of R&D with the patent box regime and that its scope includes not only patents, but also “similar IP rights” and expenditures. Also, the disclosure rules for hidden reserves and the transitional step-up measures are important pillars of the reform and provide for planning stability.
I believe that in order to achieve the goal of sustainably securing the attractiveness of the business location Switzerland, more measures are required. Especially the instrument of the notional interest deduction (“NID”) will have to play an important role, in particular for group financing activities; I hope that it will get re-introduced in the upcoming parliamentary debates.
The Federal Council rightly sets an ambitious pace for this far-reaching reform package; parliamentary discussions within the chambers and commissions are due to start over the coming weeks. I am convinced that the reform is a great opportunity for Switzerland to further enhance its competitiveness; but it is crucial to implement quickly in order to provide for the needed legal and investment security.
- Article: Corporate tax reform III ready for parliamentary deliberation
- Corporate tax services at KPMG