Switzerland: Swiss Federal Council to introduce revised CTR III legislation quickly

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Switzerland: Swiss Federal Council to introduce revised CTR III legislation quickly

kistler.jpg
Zulauf

Jacques Kistler

Rene Zulauf

After the rejection of Corporate Tax Reform III (CTR III) by the Swiss electorate on February 12 2017, the Swiss Federal Council now plans to introduce revised legislation of the tax reform quickly and has instructed the finance ministry accordingly.

The Swiss finance ministry intends to set the parameters for a revised CTR III by the end of June 2017 and plans to hold hearings with interested parties on the reform from March until the end of June 2017.

The exact parameters of a revised legislation remain open and assumptions on what a revised legislative proposal will entail are speculative in nature. However, it can reasonably be assumed that a revised CTR III will likely be a compromise built around the largely undisputed measures of the rejected tax reform. The largely undisputed measures were essentially the following parameters of the rejected tax reform, which can be reasonably expected to also be part of a revised tax reform:

  • The phasing out of all special corporate tax regimes, such as the mixed, domiciliary, holding and principal company regimes, as well as the finance branch regime;

  • A reduction of the general cantonal/communal tax rates at the discretion of the individual cantons;

  • 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;

  • 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;

  • 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; and

  • A reduction of the cantonal/communal annual net wealth tax in relation to the holding of participations and of patented IP at the discretion of the individual cantons.

However, it is possible that there will also be some fine tuning around the largely undisputed parts of the tax reform, most likely in regards to R&D super deductions.

What is unlikely to remain in a revised legislation, however, is the introduction of a notional interest deduction (NID) regime at the federal level and at the discretion of the individual cantons.

Although it still may be possible for revised legislation to meet the original January 1 2019 introduction timetable at the federal level if the Swiss parliament decides on the revised legislation in its winter 2017/2018 session, since the cantons need adequate time to introduce the law into cantonal legislation, the introduction of the law may be postponed by one to two years, i.e. to January 1 2020 or 2021.

Jacques Kistler (jkistler@deloitte.ch) and Rene Zulauf (rzulauf@deloitte.ch)

Deloitte

Tel: +41 58 279 8164 and +41 58 279 6359

Website: www.deloitte.ch

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