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Switzerland: Federal Council issues draft legislation on Tax Reform Proposal 17

02 October 2017

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On September 6 2017, the Swiss Federal Council issued the draft legislation for the Swiss Tax Reform Proposal 17 (STR 17, formerly known as Swiss Corporate Tax Reform III). The proposal that largely follows the recommendations of the steering committee represents a well-balanced and internationally competitive solution that would ensure that Switzerland stays an attractive location for multinationals and domestic companies alike, while at the same time providing an internationally aligned tax system that is in conformity with international standards, such as OECD BEPS and others.

The main proposed changes compared to CTR III include:

  • The notional interest deduction (NID) on federal and cantonal level is no longer part of the package;
  • The partial taxation for individual shareholders holding at least 10% would be increased to 70% from 60% on a federal level and mandatorily at least to 70% for all cantons; and
  • The combined tax relief for the patent box, the R&D super deduction and the amortisation from the step-up of hidden reserves due to a status change prior to STR 17 shall be limited to a maximum of 70% on a cantonal and communal level.

The main proposed elements of STR 17 include:

  • The sunset of all special corporate tax regimes, such as the mixed, domiciliary, holding and principal company regimes, as well as the Swiss finance branch regime;
  • The tax-privileged release of 'hidden reserves' for cantonal/communal tax purposes for companies transitioning out of tax-privileged cantonal tax regimes (such as mixed or holding companies) into ordinary taxation, with the intent to mitigate such effects by providing companies with a lower tax rate during a transition period of five years;
  • A reduction of the general cantonal/communal tax rates at the discretion of the individual cantons. Various cantons can be expected to be in the 12%–14% ETR bracket (effective combined federal/cantonal/communal tax rates);
  • The introduction of a mandatory cantonal-level patent box regime applicable to all patented intellectual property (IP) for which the research and development (R&D) spend occurred in Switzerland, based on the OECD modified nexus approach;
  • The introduction of cantonal R&D incentives in the form of deductions of up to 150% of qualifying R&D expenditure at the discretion of the individual cantons; and
  • A step-up of asset basis (including for self-created goodwill) for direct federal and cantonal/communal tax purposes upon the migration of a company or additional activities and functions into Switzerland.

Expected timeline

The proposed legislation will now enter the consultation procedure, which lasts for three months and under which the various stakeholders can weigh in on the legislation, so that the final version can be introduced into and voted on by the Swiss Parliament in its spring session of 2018. It seems currently unlikely that there would be a referendum (public vote) on the legislation, so that STR 17 could enter into force as soon as January 1 2020, but no later than January 1 2021.

Jackie Hess ( and René Zulauf (
Tel: +41 58 279 6312 and +41 58 279 6359

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