Share with your friends
Tax Proposal 17 – Switzerland's parameters

Tax Proposal 17 – Switzerland's parameters

Tax Proposal 17 – Switzerland's parameters

Tax Proposal 17 – Switzerland presents its parameters

2 June 2017

Subsequent to the Swiss electorate’s rejection of the Swiss Corporate Tax Reform III on 12 February 2017, the Swiss Federation will soon be presenting a new tax reform. On 9 June 2017, Federal Councilor Ueli Maurer informed the public about the parameters of the new Tax Proposal 17, a reform which is largely based on the Swiss Corporate Tax Reform III.

The new tax reform comes in a new outfit

While some of the elements of the CTR III are also found in the Tax Proposal 17, other elements are completely new, primarily included to gain majority vote among Parliamentarians and Swiss voters. A first appraisal of the parameters can be found below:

  • Introduction of a patent box regime and a R&D super deduction, both similar to the Swiss Corporate Tax Reform III. This signals a clear commitment toward Switzerland as an attractive R&D location. However, the taxed income definition will be narrowed under the patent box regime. Further, the additional super deduction for R&D (50%) shall take more account of personnel costs.
  • The new Tax Proposal 17, unlike the CTR III initiative, does not foresee a notional interest deduction, which would have led to a deduction granted on excessive shareholders’ equity. The mere consideration of this instrument within the Tax Proposal 17 could jeopardize the acceptance of the new reform. This could have a negative impact on Swiss cantons, particularly in the Canton of Zurich, that is now losing an effective tax instrument. Consequently, Zurich could then only rely on the tax rate reduction.
  • Another novelty of the Tax Reform 17 is a proposed higher dividend taxation for individuals. According to this factor, 70% of the individuals’ dividend income shall now be taxable. In contrast to the current situation of an on average 60% taxation of the individuals’ dividend income at the Federal level if held privately, whereby the cantonal thresholds may vary. Within the scope of the Tax Reform 17, the cantons are encouraged to follow the Swiss Federal solution by increasing their dividend taxation to a minimum to 70%. This could have a particular effect on small and medium sized enterprises as they may thus face higher taxes.
  • The increase of the child and education allowance by CHF 30 per month has the effect of a foreign body. Such measures, however, can contribute to a reform’s success as the case in the Canton of Vaud recently demonstrated. However, this measure could threaten the acceptance of the tax reform, seeing as additional costs then have to be borne by employers.
  • The overall tax relief of all tax measures shall now be limited to only 70% instead of 80%.
  • On the other hand, there is no change in the intent of abolishing of the status societies – the original trigger of the USR III. These are still to be abolished.
  • Moreover, the Federal Steering Committee proposed that the cantonal share of the direct Federal tax income should be increased. The originally proposed increase of the cantonal share from 17% to 21.2% was now adjusted to 20.5%.

The legislative process is progressing unusually rapid

The drawing up of a new reform as a first reaction from the Federal Council to the refusal of the Swiss Corporate Tax Reform III was not long in coming. Consequently, this shows the importance that Switzerland attaches to the implementation of a tax reform. The worked out timeline of the new reform is kept ambitious. In September 2017, the consulting process is supposed to start with the aim that they will have obtained the first results by year-end. Successively, the Swiss Federal Council will share its dispatch to Parliament in spring of 2018. The Parliament will then discuss and pass the new tax reform law, so that according to the media conference “first aspects” of the new law enter into force beginning of 2019, granted no referendum is scheduled.


Connect with us