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Switzerland: Basel-Stadt voters agree to tax reform

Switzerland: Basel-Stadt voters agree to tax reform

The Basel-Stadt electorate on 11 February 2019 voted by a large majority (78.8%) to adopt the “Basel compromise on tax proposal 17”—in effect, the canton would proactively implement the harmonization provisions of the Federal Act on Tax Reform and AHV Financing (TRAF). The canton or Basel-Stadt, thus, is creating the basis for competitive, OECD-compliant, and legally certain taxation for companies domiciled in the canton.


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The tax reform measures are subject to a vote throughout Switzerland on 19 May 2019.

New corporate taxation in Basel-Stadt

In general, the following measures are part of the new corporate tax in the canton:

  • Effective corporate income tax rate at the federal and cantonal levels incl. municipalities of 13.04% (previously, 22.18%)
  • Capital tax rate of 0.1% (previously of 0.525%) with taxable equity capital attributable to qualifying participations and patents qualifying for the patent box being indirectly exempted at 80%
  • Repeal of tax privileges (holding / management companies / mixed companies)
  • Regarding a transfer to the ordinary tax status, hidden reserves and self-generated goodwill could be separately taxed at a special rate of 3% within five years; loss carryforwards could be used within the scope of the taxable quota at the time they arose
  • Patent box regime introduced, with the net profit from patents and comparable rights to be included in the calculation of the taxable net profit per patent or comparable right (so-called “nexus ratio”) with a reduction of 90% in the ratio of the qualifying to the total research and development expenditure per patent or comparable right
  • Relief limit at 60% of taxable net income (excluding investment income and loss offsetting)
  • Partial taxation of dividend income at 80% (previously at 50%)
  • Minimum participation rate of 5% in the case of transposition (Transponierung) no longer applicable
  • Provisional takeover of foreign losses incurred by permanent establishments (analogous to federal corporate income tax law)

Enactment and transitional phase 2019

The effective date is to be communicated shortly by the Government Council. It remains to be seen what provisions would apply in the transition phase 2019 until the tax reform legislation is enacted at the federal level.

Since the bill and the mandatory new harmonization law would be effective on 1 January 2020 at the earliest, it appears that Basel-Stadt would have to continue to grant tax privileges still in effect during the 2019 calendar year. For the same reason, the patent box and the repeal of the minimum quota for transposition of 5% in Basel-Stadt would presumably not be effective before 1 January 2020. Consequently, the increase in partial dividend income taxation to 80% would most likely not be effective until 1 January 2020 at the earliest.

There are further indications that the Government Council already has plans during 2019 to lower the corporate income tax rate (as described above) as well as to put into effect the separate taxation of hidden reserves and goodwill. This would provide resident companies and currently privileged companies the (attractive) opportunity to switch to OECD-compliant taxation already in 2019.

Read a February 2019 report prepared by the KPMG member firm in Switzerland

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