Corporate Tax Reform III: Great opportunity for Switzerland

in Tax, 25.09.2014

The reform package represents a great opportunity for Switzerland to retain and further develop its position as one of the most attractive business locations worldwide, while increasing international acceptance of its corporate tax legislation.

On Monday 22 September 2014, the Federal Council started the consultation phase on Switzerland’s Corporate Tax Reform III. This far-reaching reform project will reshape the Swiss tax legislation with the aim of retaining and further developing Switzerland’s position as one of the most attractive business locations worldwide. Next to increasing international acceptance of its corporate tax legislation, that has been under pressure from the EU and the OECD, the Reform also aims at sustainably securing adequate tax revenues to finance public activities.

The draft focuses on the provision of legal and investment security and on generally increasing the competitiveness of the tax system while abolishing five special tax regimes: The holding, domicile and mixed company regimes on Cantonal level, the principal company regime on Federal level, and the Swiss finance branch regime. The draft is based on the pillars of the License box, a Notional Interest Deduction, the Step-Up mechanism to reveal hidden reserves, a general lowering of Cantonal corporate income tax rates, and further measures.

Swiss License Box

The license box as proposed will help retain and encourage investment in Switzerland. This is achieved by providing an incentive to retain and commercialize existing patents and to develop new innovative patented products, and by encouraging companies to locate related high-value jobs to Switzerland

Notional Interest Deduction

The draft suggests the introduction of a notional interest deduction on “higher-than-average” equity of a company. This will support the retention of financing functions in Switzerland, and should generally favor companies that are well financed with equity.

Step-up Mechanism

Ensuring planning certainty both for the tax payer and the authorities are the main ambitions of the proposed step-up mechanism. It will ensure a consistent tax treatment of companies relocating from or to abroad, or when entering respectively leaving a license box or tax exemptions.

Lowering of Cantonal Tax Rates

Cantons are free to decrease their Cantonal and Communal corporate income tax rates within the boundaries of their budget. Certain Cantons have already announced new target rates, Vaud for example will decrease its rate to 13.79% (read also the blog article Canton of Vaud – lowering corporate tax rate to 13.79%)

Further Measures

The draft contains further measures, such as the abolishment of the stamp issuance duty, changes to off set loss carry forwards, amendments to the participation deduction, capital gains for privately held securities, and amendments to the partial taxation of participation income.

The consultation procedure for the legislative draft will last until January 2015, after which the Federal Council will prepare the final proposal for discussion within the Parliamentary chambers and commissions. If no referendum will be taken, it can be assumed that the new legislation will come into force by 2019.

We are convinced that this Reform will allow Switzerland to secure its standing among the most attractive business locations worldwide – and are looking forward to continuing in supporting you making the most of it.



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