The reform also includes tax breaks. Income from patents and rights will be largely subject to tax breaks at cantonal level using a patent box regime. In accordance with the regulations of the individual cantons, research and development expenses in Switzerland will be deductible in the amount of up to 150% of the actual costs incurred. The notional interest deduction granted on excessive shareholders‘ equity at federal level will also be possible at cantonal level. However, upwards of a certain minimum shareholding, at least 60% of dividends will be taxed.
Mathias Josi from our Swiss Nexia partner T + R AG answers all of our questions on what will happen next.
Mr. Josi, were you surprised that Swiss voters rejected the corporate tax reform?
No, the widespread uncertainty regarding the specific effects indicated some time before the referendum that the reform would probably be rejected.
So what will happen next? Is corporate tax reform in Switzerland now off the table?
Policymakers agree that a new draft must be drawn up as quickly as possible. The special taxation regime for what are known as “special status companies” will be abolished. Which other elements will be integrated into a new draft remains a topic of political discussion. The Federal Finance Department is expediting work on a new version of the reform under the title Steuervorlage 17. The basic parameters of the new bill are expected to be presented to the Federal Council in June 2017 for decision. However, an amended reform is unlikely to come into force before 2020.
What effects will the proposed legislation have for foreign investors, say foreign companies with Swiss subsidiaries?
None in the short term, but at the moment there is naturally a certain degree of legal uncertainty, which is to be redressed as swiftly as possible through Steuervorlage 17.
Will this temporary halt to the reform plans hurt Switzerland as a business location?
It certainly won’t help. It is now up to the political decision-makers and ultimately again up to voters, perhaps, to offset any potential adverse effect as quickly as possible.
Are there other planned changes in tax law that are relevant for foreign companies which are active in Switzerland?
No other changes in tax law are planned at present. The focus is on Steuervorlage 17, which – as mentioned above – will eliminate the special tax status that is important for many foreign companies. It will be interesting to see whether individual cantons make perceptible cuts in profit tax rates of their own accord in the meantime. The attractiveness of individual locations from a tax perspective is expected to remain unchanged with effective minimum tax rates of 12% or 13%.