Corporate Tax Reform
The consultation materials of the Corporate Tax Reform (CTRIII) joint project organization, appointed by the
Confederation and cantons, claim that Switzerland, although being a small country with an open economy, still
actively demonstrates its tax advantages.
The Corporate Tax Reform is designed to increase the appeal of Switzerland as a low tax location and to reinstate
its international attractiveness. There has been criticism of certain tax arrangements for Swiss holding,
domiciliary and mixed companies. The reform is to eliminate the different taxation of domestic and foreign
corporate profits on the cantonal level. At the same time, dialogue is under way with the EU.
To remain competitive internationally, privileged taxation of royalties and adjusted profit tax are to be newly
introduced on the federal level. The cantons also have the opportunity to lower profit taxes. The reduction in
tax receipts associated with the reforms should be distributed equally between the Confederation, the cantons
and the communes.
There is fierce international tax competition regarding corporate taxation. As a small and open economy,
Switzerland is reliant on being able to prevail in this competition and actively shaping the competitive
conditions. Corporate taxation in Switzerland has increasingly been facing international (MB GROUP:
mainly European) criticism since the mid-2000s.
The most significant and comprehensive project is the OECD’s action plan on base erosion and profit shifting
(BEPS). Here, the room for manoeuvre of multinationals in the area of corporate taxation should be limited and
the exploitation of existing weaknesses in the international tax system should be restricted.
The Swiss practice of tax privileges relating to foreign revenues of holding, domiciliary and mixed companies,
i.e. ring-fencing, has come in for international criticism. These companies enjoy a so-called cantonal tax status.
Within the OECD, Switzerland is actively involved in the work on fair tax competition between countries.
Content of the Reform
The abolition of the cantonal tax status is the starting point of the corporate tax reform. Obviously, the abolition
of these regulations would be accompanied by a loss of competitiveness for Switzerland, which is to be compensated
for by other internationally acceptable measures.
For example, royalties should be taxed at a reduced rate at cantonal level by means of a royalty-box (MB GROUP:
widely used in the EU countries). This should promote research, development and innovation. In addition, there
are proposals for an interest-adjusted profit tax on above-average levels of equity capital. Both of these measures
take account of the fact that certain business activities are subject to low levels of taxation when compared
internationally. Adjustments are also to be made to cantonal taxes on capital.
In addition, a package of measures should improve the tax legislation system. This includes the abolition of the
issue tax on equity capital, adjustments to participation deductions and the offsetting of losses.
Confederation to support cantons
The tax policy measures will be implemented largely in the cantons and their communes. In order to cushion their
burden, the cantons’ share of direct federal tax is to be increased from the current 17% to 20.5%. The cantons
will thereby receive approximately CHF 1 billion p.a. more than today.
Source – «Federal department of Finance»
Summary by MB GROUP SWITZERLAND AG
Over a period of several years our experts have been constantly monitoring and analyzing developments
concerning the Swiss Corporate Tax Reform to be implemented, which enables us to share the following conclusions
(in a nutshell):
1. Swiss privileged taxation could not but provoke the EU outspoken displeasure: with the regard to crisis
blooming in the euro area, the EU countries arduously seek to replenish their own budgets in the first line.
As a result, the EU wants Switzerland to reshape its tax legislation so that certain privileged tax regimes
2. The Federal Government met the challenge and is going to replace current tax advantages with the new benefits
that will, on the one hand, aim at preserving Switzerland’s international tax attractiveness, and will preclude
any chance of further tax system disputes with the EU on the other.
3. The new measures are meant to prevent Swiss tax policy from being internationally criticized any further.
Consequently, the lack of pressure from the EU will allow entrepreneurs stably performing their business activities
in Switzerland as well as in the EU countries.
Some experts consider that the adoption of the Corporate Tax Reform will very likely result in international
companies relocating to Switzerland from other jurisdictions: apart from the new tax rates identical or comparable
with those in the EU, Switzerland offers undeniable business benefits such as political neutrality, economic
stability, access to the EU and China markets, and its impartial justice system.