On March 16th and 17th 2016 the National Council debated the Corporate Tax Reform III (CTR III) and the draft legislation (published on June 5th 2015) and took position, whereby it clearly expressed its position towards measures in favor of the economy and against additional tax burdens.
Based on the dispatch of the Federal Council of June 5th 2015 regarding the CTR III, the Council of the States made a first decision on the reform on December 14th 2015. The debate on the CTR III continued on March 16th and 17th 2016 in the National Council.
The National Council was strongly responsive to the international development, particularly the OECD BEPS project, and reinforced the recommendations of the Federal Council as well as the decisions of the Council of the States regarding the abolishment of the internationally no longer accepted privileged tax regimes such as the holding, domiciliary and mixed company at cantonal/municipal level as well as the principal company status at federal level.
To keep the Swiss tax system attractive and to prevent companies from leaving Switzerland, several new measures were discussed whereas the National Council overall approved and even expanded the recommendations of the Federal Council. Additional, the measures which were rejected by the Federal Council in the course of the draft legislation were taken up again.
In a nutshell, the National Council concluded the following:
- The National Council argued for an introduction of a Patent Box regime, but in contrast to the Council of the States it would like to leave the decision on the amount of the reduction with the cantons (the Council of the States wanted to limit the reduction at maximum 90%).
- Furthermore, a R&D Super Deduction shall be allowed, whereby the costs for research and development can be deducted from the tax base by more than 100% of the effective costs. In contrast to the Council of the States, the National Council would like to leave a possible limitation of this deduction with the cantons (the Council of the States wanted to limit the deduction to maximum 150%). In addition, the deduction shall also be applicable for R&D expenses by third parties abroad.
- In contrast to the Federal Council and the Council of the States, the National Council argued for the introduction of a Notional Interest Deduction, whereas a deduction of an imputed interest on excess equity shall be allowed. In doing so, the cantons should be free in their decision to introduce such a deduction.
- As limitation of these new tax privileges the Patent Box regime, the R&D Super Deduction as well as the Notional Interest Deduction should result overall in a maximum reduction of 80%, whereas the cantons shall have the opportunity to determine a lower limit.
- The National Council would like to introduce a so-called Tonnage Tax for shipping companies, whereby such shipping companies are not taxed based on their net income but on a lump-sum of the tonnage of the ship.
- Regarding the capital tax (net wealth tax), the cantons shall be entitled to grant a reduction based on patents and participations as well as – additionally and in contrast to the Council of the States – based on intercompany loans. A minority proposal to declare the capital tax facultative by the cantons was rejected.
- Finally, the transitional measures in connection with the step-up for tax purposes were also approved by the National Council.
Further, the National Council voted against the following propositions regarding additional funding of the state:
- The current regulation regarding the partial taxation of dividends shall be kept. The National Council rejected the full taxation of dividends as well as a Switzerland-wide standardization of a 70% taxation of dividends.
- The introduction of a capital gains tax in respect of (privately held) securities was rejected.
- Likewise, there shall be no adaption of the current capital contribution principle.
In addition, the abolishment of the stamp duty on equity was currently rejected by the National Council, but shall however be readopted in the future within the scope of a separate proposal.
Overall, it can be concluded from these decisions that the National Council– in contrast to the Federal Council and to the Council of the States – is very open to the partially controversial measures and seeks their maximum implementation, whereby the cantons shall be granted with significant room for maneuver. Discussed measures which would result in additional tax burden and in additional revenues for the state were rejected by the National Council, which clearly shows its position to form a long-term attractive Swiss tax system for companies despite expected short-term tax deficits.
As a next step, the reform will return to the Council of the States. Thereby it is expected that in particular the Tonnage Tax and the R&D Super Deduction for contract R&D expenses by third parties abroad will need to be discussed. In case there would be a referendum against the reform followed by a public vote, it is expected that the new law will only enter into force by 2018/19.