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Switzerland: Swiss corporate tax reform 2017: Swiss Senate approves revised version of the reform

On June 7 2018, the Swiss Senate passed the revised so-called Swiss Corporate Tax Reform 17 Bill following the recommendations of its Ways and Means Committee. The version approved by the Swiss Senate contains the following elements.

Abolishment of all Swiss special income tax regimes

All special Swiss income tax regimes, such as the mixed company or holding company regimes, will be replaced with measures that are both internationally accepted and that ensure Switzerland will remain attractive for multinational companies.

Replacement measures

  • Reduction of the general tax rates at the discretion of the individual cantons, where the majority of cantons will be in the 13% to 14% tax rate range (effective combined federal/cantonal/communal tax rate, effective tax rate [ETR]) with some cantons, such as Zug, Schwyz and Lucerne, with an ETR as low as 12%;
  • Introduction of a patent box, which follows the so-called modified nexus approach by the OECD on a cantonal level with tax relief for qualifying income of up to 90%;
  • Introduction of a research and development (R&D) super-deduction at the cantonal level up to a maximum of 150% of the effective qualifying expenses;
  • Tax-privileged release of reserves for companies transitioning out of tax privileged regimes. This should enable companies to more or less maintain their existing level of taxation for another five years after the sunset of the regimes in 2019 or 2020;
  • Step-up upon migration of a company or of activities and functions to Switzerland. A step-up would be allowed for direct federal and cantonal/communal tax purposes (including on self-created goodwill) for companies or additional activities and functions migrating to Switzerland;
  • Reduction of the cantonal/communal annual capital tax in relation to intercompany loans and patented intellectual property at the discretion of the individual cantons; and
  • Cantons with a 'high' cantonal tax rate may introduce a notional interest deduction (NID) on a cantonal level. This may only benefit the canton of Zurich and potentially very few selective cantons with high enough tax rates.

Revenue raising measures

The Bill contains the following revenue raising measures:

  • Listed companies, when repaying qualified capital contribution reserves (which can be repaid tax free), must now pay at least an equal amount in dividends;
  • The partial taxation of dividends for qualifying Swiss shareholders is increased to 70% at a federal level, respectively to at least 50% at a cantonal level; and
  • The tax reform will be combined with Swiss social security reform, with an increase of social security contributions by employees and employers.

Next steps

The Swiss House of Representatives is expected to vote on the legislation in its autumn 2018 session. The final reform is expected to pass by September 2018.

If there is no referendum, some elements of the tax reform, such as the automatic termination (sunset) of regimes with respective transition measures could become effective as soon as in the first quarter of 2019, with the bulk of the reform being effective as early as January 1 2021.

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