Switzerland: A year in review and an outlook on the tax landscape

December 14 2017

In 2017, Switzerland continued to be an ever more attractive tax location for multinational and domestic enterprises alike, while at the same time becoming more aligned with international tax legislation, a trend that will continue for 2018.

The dominant topic in 2017 was the so-called Swiss Tax Reform 17 (STR 17) under which all special tax regimes, such as the mixed company regime, will sunset, accompanied by a transition mechanism of five years, and be replaced by other measures, such as a significant reduction of cantonal tax rates, the introduction of a patent box, or R&D incentives. While the Swiss voter rejected the original version of the reform in a referendum on February 12 2017, the Swiss Federal government on September 6 2017 issued a revised draft legislation. The final legislation is expected to be discussed by the Swiss Parliament in the spring of 2018. Since this is considered a well-balanced legislation brought about with the inclusion of all stakeholders, a referendum on the legislation may be considered unlikely, so that STR 17 could enter into force as soon as January 1 2019.

A cornerstone of the tax reform is a reduction of cantonal tax rates, where most cantons expect to be in the 12-14% ETR range (effective combined federal/cantonal/communal rate). On November 1 2017, the canton of Vaud became the first canton to officially reduce its tax rate to an ETR of 13.79% as of January 1 2019.

As of January 1 2018, the Swiss VAT rate will be reduced from 8% to 7.7% (standard rate) and from 3.8% to 3.7% (special rate), while the reduced rate of 2.5% will remain unchanged.

The Swiss government enacted tax friendly withholding tax legislation on February 15 2017 under which the notification procedure on intra-group dividends applies if the respective conditions are met, even if the 30-day deadline is missed, and no-late interest will be applied. Taxpayers who already paid late interest may claim such late interest back if the conditions are met.

On the international front, Switzerland on June 7 2017 signed the Multilateral Instrument (MLI) on the implementation of tax related measures against base erosion and profit shifting (BEPS) with a first batch of 14 countries. The agreement will allow Switzerland to adapt double taxation agreements to the minimum standards as agreed under the OECD BEPS project.

And finally, from 2018, the Swiss tax authorities will start to exchange tax rulings internationally. Rulings will be exchanged that are still in force as of January 1 2018 and were entered into after January 1 2010. Switzerland does not share rulings retroactively. Taxpayers who do not wish to share their rulings have the opportunity to withdraw their rulings before the end of 2017.

With the enacted and upcoming changes in its tax legislation Switzerland seems well equipped to continue to play a major role as an attractive tax and business location for multinationals in the years ahead.