Switzerland: Switzerland’s proposed Corporate Tax Reform III – transfer pricing impacts

Hans Rudolf Habermacher		Anja Klein

The proposed abolishment of the Swiss holding, mixed and domiciliary company tax regimes within the next five to seven years and the planned introduction of replacement tax measures (for example, the licence box and notional interest deduction) known as the "Swiss Corporate Tax Reform III" has recently sparked some discussions regarding its impact on corporate taxation. It should not be forgotten, though, that this reform will also have significant impacts on transfer pricing arrangements: many MNEs conducting business in Switzerland operate under said tax regimes and from a transfer pricing perspective their abolishment may entail a revision of the underlying business model and transfer pricing set-up to ensure MNEs continue to benefit from favourable taxation levels in Switzerland.

The proposed tax reform may require taxpayers to pay more attention to their transfer pricing arrangements. This, however, may provide valid opportunities for companies to optimise their intercompany structures in such a way that they make maximum use of the new structuring possibilities. If implemented, an IP box tax exemption may allow existing companies to significantly reduce the tax rate on royalty income received from foreign affiliated companies or alternatively, a separate licence box company could be created to benefit from such an exemption.

Similarly, the notional interest deduction on equity as currently suggested would be an effective way to reduce a holding company's or mixed company's taxable income in case of a strong equity base. Thus, the new tax reform will allow taxpayers to implement attractive structures through valid transfer pricing, if aligned to the transfer pricing guidelines, as alternatives to the existing preferential Swiss tax regimes.

Hans Rudolf Habermacher (hhabermacher@deloitte.ch)
Tel: +41 58 279 6327
Anja Klein (aklein@deloitte.ch)
Tel: +41 58 279 7245
Deloitte

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