Nathalie Urban		Daniel Gremaud

The Swiss federal government, the Federal Council, recently announced a range of corporate tax reforms designed to increase Switzerland's attractiveness and prospects for growth as a business location. A draft consultation paper on corporate tax reforms will now be prepared by the federal department of finance.

Elimination of tax barriers

The main elements of the reforms involve the abolition of issue tax on equity and debt capital and the elimination of tax barriers to company financing. Issue tax on equity has a disincentive effect on investment. For its part, issue tax on debt capital constrains financing activities, particularly those of international companies. In the future, transactions within the group should be exempted from stamp duty and withholding tax.

At the cantonal level, it should be made possible for the cantons to waive capital tax. In addition, further measures, such as adjustments to the system of participation relief for corporate bodies, are examined.

Amendment of cantonal tax privileges

In the area of cantonal tax privileges of holding companies and administrative companies, the focus is on a general ban on the business activities of holding companies and modifications in the provisions governing mixed companies and the abolition of the status of domiciliary companies. These measures take into account the concerns raised by the EU within the scope of its tax disagreement with Switzerland. However, the federal council once again notes that special cantonal privileges do not violate the free trade agreement with the EU and continues to reject negotiations with the EU on fiscal matters.

Implications

The range of reforms contemplated would enhance capital formation and entrepreneurial activity, have a positive impact on growth and strengthen Switzerland's position in international tax competition in the face of similar measures taken by other countries. It remains to be seen how fast they can be implemented.

Nathalie Urban (nathalie.urban@ch.pwc.com) and Daniel Gremaud (daniel.gremaud@ch.pwc.com)