Tax Proposal 17

Overview of the most important developments regarding Tax Proposal 17

Tax Proposal 17 is important for Switzerland!

The reform of the current corporate tax system remains an important concern for all parties. The aim is to ensure the long-term tax attractiveness of Switzerland as a business location, to guarantee the international acceptance of Swiss corporate taxation and to guarantee sufficient tax revenues.

On 28 September 2018, the Swiss Federal Parliament adopted the Tax Proposal 17 with clear majority. Before the Federal Council definitively can set the date of entry into force, scheduled for 1 January 2020, it is likely that the approval of the Swiss electorate will also become necessary in a referendum. The popular vote is likely to be held on 19 May 2019.

In parallel, the cantons are pushing ahead with the implementation of the provisions of the Federal Tax Harmonisation Act into their cantonal tax laws.

We will be happy to inform you about the current status of developments and show you how you can prepare your company for Tax Proposal 17.

The key points of the Tax Proposal 17

Introduction of patent box and special deduction for R&D costs

Tax advantages for income from intellectual property rights are intended to promote research and development activities and corresponding value creation. The text of the Act provides for a precise definition of which patents or comparable rights qualify for patent box taxation. In addition, the draft regulation contains detailed provisions on the calculation mechanism and documentation obligations. In accordance with the international OECD standard, the Nexus approach will apply either by patent, by product or by product family.

  • The implementation of the patent box is mandatory at cantonal level. 
  • The introduction of the special deduction for research and development expenses is optional for the cantons. This deduction may not exceed 50% of the relevant R&D expenditure in Switzerland.
Limited introduction of a notional interest deduction on equity

The introduction of a notional interest deduction on so called security capital intends to prevent excessive indebtedness by companies. Parliament has decided that this measure may only be implemented by cantons with a statutory cantonal and communal tax rate of at least 13.5% at the cantonal capital.

Only the Canton of Zurich currently fulfils this requirement and plans to introduce the notional interest deduction on equity at cantonal level. In contrast to the failed Corporate Tax Reform III bill, this instrument is not available for federal income tax purposes.

Further tax policy measures

Other changes include an increase in the cantons' share of direct federal taxes, which they can use to reduce cantonal corporate income tax rates, the introduction of a maximum relief limit of 70% of taxable profit for all new measures at cantonal level, adaptions relating to cantonal capital taxes, adjustments to the capital contribution principle for companies listed at a Swiss stock exchange, an increase in the partial taxation of private dividend income to 70% for federal tax and at least 50% for cantonal and communal taxes, as well as a more uniform tax treatment for changes in tax status, relocations and exits of companies to/from Switzerland. As a social compensation measure, an additional CHF 2 billion in AHV funding is included in the package.

 

We advise you on Tax Proposal 17

Overall analysis of the impact of the reform on your company

The abolition of cantonal tax status and principal taxation as well as the tax rules for Swiss finance entities and the introduction of the reform measures mentioned above can trigger a profound change in the tax burden of a company in Switzerland. There will be winners and losers. The aim of the impact analysis is to show how the reform will have a concrete impact on the tax burden of your company in Switzerland. It also shows how a company can optimally prepare for the reform by adapting its existing structures or tax business model.

 

Impact analysis of individual reform elements

PwC has developed analysis tools to simulate the effects of the following elements of the reform in advance. Of course, a combined analysis of various measures is also possible.

  • Simulation Patentbox and R+D Abzug
  • Simulation of notional interest deduction on equity (in Canton Zurich)
  • Simulation transition rules
  • Simulation of effects on capital tax

 

International exchange of tax rulings and Country by Country reporting

The OECD's new rules on international transparency are designed to ensure taxation at the place where profits are actually generated. This leads to additional compliance tasks and higher demands on your company's tax risk management. Our specialists will be happy to assist you.

Development of a transfer pricing model

Together with you, we develop a transfer pricing model that takes into account the needs of your company in the light of the new OECD regulations.

 

Determination and enforcement of transfer pricing strategies

We also define transfer pricing strategies that are in line with the principle of arm's length pricing. In addition, we support you in making your pricing model more sustainable and protecting it better.

Implementation of Tax Proposal 17 in Zurich

 

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Implementation of Tax Proposal 17 in Basel-Stadt

 

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Our expert

Armin Marti

Partner and Leader Tax Policy, Zurich, PwC Switzerland

+41 58 792 43 43

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