Federal Act on Tax Reform and AHV Financing

Overview of the most important developments regarding Tax Proposal 17

Tax reform and AHV financing (STAF) adopted!

The key objectives of the reform of the current corporate tax system are ensuring the long-term tax attractiveness of Switzerland as a business location, ensuring international acceptance and guaranteeing sufficient tax revenues. These goals can now be implemented. On 19 May 2019, the Swiss electorate adopted the tax package with 66.4 % favorable votes. The reform will hence enter into force on 1 January 2020. It is now up to the cantons, if they have not already done so, to push ahead with the implementation of the provisions of the Federal Tax Harmonisation Act into their cantonal tax laws.

We will be pleased to inform you about the current status and show you how you can prepare your company for the upcoming changes.

Key points of the tax reform and AHV financing (STAF)

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

Research and development activities and their value creation in these areas are promoted with tax advantages for income from intellectual property rights. The text of the law provides for a precise definition of which patents or comparable rights qualify for box taxation. In addition, the ordinance contains detailed provisions on the calculation mechanism and documentation requirements. In accordance with the international OECD standard, the Nexus approach can be applied by patent, product or product family. The implementation of the patent box is mandatory at cantonal level.

The introduction of a 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.

EN: Further information: www.patent-box.org

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 a

  • Increasing the cantons' share of the direct federal taxes which they can use to reduce cantonal profit tax rates,
  • limiting the maximum relief for all new measures at cantonal level to 70%,
  • Adjustments to cantonal capital tax, 
  • Introduction of a proportionality rule under the capital contribution principle for companies listed on a Swiss stock exchange, 
  • increasing the partial taxation of private dividend income to 70% for federal taxes and at least 50% for cantonal and municipal taxes,
  • as well as more uniform tax treatment in the event of changes in tax status, inflows and outflows of companies.
  • As a social compensation measure, an additional CHF 2 billion financing of the AHV was decided by increasing the AHV contribution rates of employer and employee by 0.15% each.

Target tax burden after tax reform and AHV financing come into force

What we can do for you

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.

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

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.

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.

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.

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Contact us

Armin Marti

Partner and Leader Tax Policy, PwC Switzerland

Tel: +41 58 792 43 43