Swiss Federal Council Approves Corporate Tax Reforms

The Swiss Federal Council has adopted a dispatch on the Corporate Tax Reform Act III (CTR III), a package of reforms it said will strengthen the country as a business location and ensure companies make an appropriate tax contribution.

The Council agreed on the parameters of the CTR III on April 1, and on May 5 adopted the dispatch on the Federal Act on Tax-Related Measures to Strengthen the Competitiveness of Switzerland as a Business Location. The Council said the reforms will ensure a competitive environment for companies operating in Switzerland, while respecting the cantons’ tax and fiscal policy autonomy and guaranteeing inter-cantonal competition.

Under the CTR III, the cantonal tax statuses for holding companies and management companies will be abolished. The Federal Council said these arrangements are no longer compatible with international standards.

A patent box will be introduced for cantonal taxes, to provide preferential treatment for revenue from patents and similar rights associated with research and development in Switzerland. The cantons will be given the option of applying a higher deduction for research and development (R&D) expenditure, and be able to introduce targeted capital tax deductions.

Uniform rules for the disclosure of hidden reserves will be introduced, and the issue tax on equity capital will be abolished. Dividends paid to shareholders will be taxable at 70 prevent, to take appropriate account of the burden of double taxation (taxation of both profits and dividends).

The cantons’ share of direct federal tax will be increased from 17 percent to 20.5 percent. Any costs incurred will be equally borne by the Confederation and the cantons. The Council estimates that the impact of the CTR III on federal revenues will be CHF1.3bn (USD1.39bn) a year. This figure accounts for a CHF0.1bn increase in revenue from the partial taxation of dividends, but does not take into account the likely effects of an influx or exodus of companies or the shifting of corporate functions.

The CTR III will be factored into financial planning with the 2017-2019 legislature financial plan.