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Switzerland: Update on Tax Proposal 17; Federal Council action

Switzerland: Update on Tax Proposal 17

The Swiss Federal Council on 21 March 2018 published its dispatch on “Tax Proposal 17.” There are no major changes to the tax reform measures from the consultation draft (September 2017) and parameters (January 2018).


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Among the items in the suggestions provided in the Federal Council’s dispatch are the following.

  • There is no change in the core element—that is, the intention to repeal the status companies on cantonal level as well as certain tax practices on federal level. A temporary special tax rate solution would be introduced by the cantons to avoid over-taxation upon transition to ordinary taxation.
  • A core element of the proposed new (replacement) measures is the (cantonal) patent box regime. The (cantonal) R&D “super deduction” would be optional for the cantons. The basis for the additional R&D deduction of a maximum of 50% would be: (1) personnel costs that directly relate to R&D performed by the taxpayer in Switzerland plus a premium of 35% (for other R&D costs); or (2) 80% of cost for R&D rendered and invoiced by third parties in Switzerland.
  • The overall tax relief of these measures would be limited to 70% to guarantee a minimum taxable profit of 30%. 
  • Higher taxation of dividends would apply for qualifying shareholdings of individuals. 
  • Cantons would have the option of a reduction in the calculation of the capital taxes on equity that relates to participations as well as patents and similar rights (intercompany loan assets would not be included).
  • Foreign companies relocating to Switzerland would be allowed to disclose their hidden reserves, including goodwill, without Swiss tax consequences (i.e., a step-up) and profit from additional tax deductible amortizations in the first few years.
  • In order to prevent international double taxation, Swiss permanent establishments of foreign companies would be entitled to benefit from a lump-sum tax credit.

The proposal does not include a notional interest deduction. The Federal Council also did not make any changes to the capital contribution principle.

What’s next?

After the dispatch of the Federal Council has been published, the legislative proposals will be discussed in the first chamber of the Parliament (Council of States) during the ordinary summer session (28 May - 15 June 2018) and afterwards in the second chamber (National Council) during the autumn session in (10 - 28 September 2018). A final decision by the parliament could be reached in the autumn 2018. If no referendum is called, the first measures could be effective beginning in 2019 (that is, for elements of a more technical nature) and the main part of the reform effective beginning 2020. The temporary special tax rate solution would be effective immediately after a potential positive vote by referendum or the day when it is certain that no referendum is called.


Read a March 2018 blog item posted by the KPMG member firm in Switzerland

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