All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Switzerland: New rules on inter-cantonal tax allocation established

Sponsored by Sponsored_Firms_deloitte.png
The Swiss tax reform has brought in fresh changes

Daniel Stutzmann and Manuel Angehrn of Deloitte Switzerland consider how the Swiss tax reform has led Swiss cantons to move towards a ‘function-based’ tax approach.

Following the implementation of the Swiss tax reform into applicable tax law on January 1 2020 and the abolishment of the preferential tax regime, Swiss cantons have established new rules to attribute profits amongst Swiss cantons in connection with the application of benefits provided by the reform.

Based on the long-standing practice established by the Swiss Supreme Court to avoid double taxation within Switzerland based on quotas or direct allocation, the rules allow for the appropriate determination of a profit allocation in the case of multiple locations within Switzerland. This change is in connection with the benefits derived from the Swiss tax reform. Circular letter No. 34 dated January 15 2020 outlines cases and possibilities to make use of the Swiss tax reform within an inter-cantonal context. 

Depending on the approach taken by a tax payer (direct allocation by the way of permanent establishment (PE) accounts or indirect allocation by way of quotas), cantons are required to determine the taxable profit subject to cantonal and communal tax. This will be based on their tax laws and influence their ability to grant incentives, even in cases where functions are subject to a benefit which are not performed within the canton.

The rules address the change from a mere ‘legal entity’ approach of taxation towards a ‘function-based’ taxation. Furthermore, the limitation of benefit introduced as part of the Swiss tax reform and the way limitations are shared among the cantons is defined in detail. Thus, taxpayers may need to revisit their existing legal structure and assess the impact of a likely preferential combination of research and development (R&D) entities with manufacturing, sales or distribution entities and their preferred allocation approach to fully utilise potential R&D tax incentives granted by a Swiss canton, even in case the respective activities are located in a different canton. 

Considering that tax is a deductible expense in Switzerland, the changed rules require a taxpayer to have clarity on the benefits to be applied for in the tax return prior to the business year-end. Accordingly, action in advance of the year-end is highly recommended and required.

The combination of entities and functions within a single Swiss legal entity not only makes sense from a domestic perspective, but – considering the possibilities of a transition regime or the possible R&D activities in Switzerland – could allow corporations to shelter additional profit with benefits derived from Swiss R&D.

Daniel Stutzmann

T: +41 58 279 6307


Manuel Angehrn

T: +41 58 279 7279


More from across our site

This week European Commission officials consider legal loopholes to secure minimum corporate taxation, while Cisco and Microsoft shareholders call for tax transparency.
The fast-food company’s tax settlement with French authorities strengthens the need for businesses to review their TP arrangements and documentation.
The full ALP model will be adopted through a new TP regime, which is set to boost the country’s investments and tax certainty.
Tax professionals have called on the UK government to reconsider its online sales tax as it would affect the economy at the worst time.
Tax professionals have called on companies to act urgently to meet e-invoicing compliance targets as the EU plans to ramp up digitisation.
In the wake of India’s ambitious 25-year plan for economic growth, ITR has partnered with leading tax commentators to discuss what the future will look like for India and for the rest of the world.
But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree