Swiss corporate tax reform (TRAF) brings significant changes to the Swiss corporate tax system. As the effective date of 1 January 2020 rapidly approaches, cantons and companies don’t have much time left to react where necessary.
The Swiss corporate tax reform pursues the abolition of tax regimes that are no longer internationally acceptable through the introduction of transitional measures as well as replacement measures. The main components are:
- Abolition of the current tax statuses and regimes (including transitional measures)
- Introduction of new measures like a patent box, R&D super-deduction or notional interest deduction
- Reduction of cantonal income tax rates
These changes pave the way for an internationally accepted corporate tax regime that maintains the attractiveness of Switzerland as a business location.
The tax reform will now effectively be implemented through changes in the cantonal tax laws. This applies in particular to the cantonal tax rate reductions, which are also part of the reform strategy but not formally part of the accepted federal bill. A number of cantons have in the meantime already decided on (or at least announced) the details of the implementation. There are significant differences between the cantons (e.g. specific modalities of transitional rules, tax exemption rate of the patent box, applicability and extent of the R&D super-deduction).
Timing and need for action
The reform is scheduled to enter into force at federal level on 1 January 2020 and the cantons have been asked to implement the reform by this date, too. Therefore, the effective date of the upcoming changes is fast approaching, leaving little time for cantons and companies to react where necessary.
Companies with a closing date before the end of the calendar year generally have even less time to react to the tax reform measures. Such companies, especially if they are currently benefiting under a privileged tax regime, need to explore whether it is feasible to extend their financial year to the end of December, or whether the respective canton is willing to grant the privileged taxation in the business year 2020 on a pro-rata basis until the end of December 2019.
If company-specific effects of the reform have not yet been analyzed, business leaders should do so now in order to take advantage of any planning opportunities. They also need to keep compliance in mind by considering filing requirements in connection with the transitional measures together with the tax return 2019.