Switzerland: Corporate Tax Reform in Consultation Process


Your contact

In late September 2014, the Swiss Federal Council started the formal consultation process regarding draft legislation on a comprehensive reform of corporate taxation. The legislative project was driven by international pressure exercised by international bodies such as the EU and the OECD. The pressure mainly concerns certain cantonal tax regimes such as the holding company status and the mixed and domiciliary company status. The Swiss Federal Council now proposes to abolish these tax privileges. In order to preserve Switzerland’s attractiveness as location for both domestic and foreign businesses, a number of changes to the existing corporate tax system are proposed. As these changes are expected to have a negative impact on the Swiss public revenue, certain compensatory measures are proposed as well.

Proposed Changes

  • Introduction of a nationwide license box regime: As of today, only one canton applies a license box regime. Under this concept, the IP definition is broad with almost to barriers to entry into the regime. The proposed nationwide license box is accessible to patents only and requires that the company applying for the status be involved in the development of the patent. The concept would result in an effective tax rate of patent-related income of between 8 and 9%.
  • Notional interest deduction: It is proposed to introduce a notional interest deduction on surplus equity. The surplus equity of a company would be determined based on the asset classes as per the balance sheet. The applicable interest rate would be based on 10-year federal loans plus 50bp, but not less than 2%.
  • Participation relief: The current participation relief operates as an indirect exemption and requires a minimum shareholding of at least 10% (or CHF 1 million in fair market value of the participation). For capital gains, a minimum holding period of 12 months is required also. Under the draft legislation, no minimum holding periods or quotas / fair market values would apply. Also, income and capital gains from participations would be exempted from the taxable basis directly.
  • Tax loss carry forwards: In the existing legal framework, tax losses can be carried forward and set against taxable profits for a maximum of seven years. No restrictions as to the amount of tax losses apply. The proposal of the Federal Council now limits the amount of losses that can be used to set off profits to 80% of the profits of the future period. On the other hand, the seven year carry forward limit would be abolished. A Swiss holding company could also set losses incurred in its foreign subsidiaries against its own income, provided that certain requirements are met.
  • Capital duty: Switzerland levies a capital duty of 1% on shareholders’ contributions to the equity of a company. This duty is proposed to be abolished

Compensatory Measures

  • Introduction of a capital gains tax on privately held assets: The current legislation exempts capital gains on privately held assets (except for real estate in Switzerland) from taxation. The Federal Council proposes to introduce a capital gains tax, with certain reductions in the taxable basis for capital gains realized on shares. Consequently, losses on privately held assets would become deductible, but only from capital gains realized in the same period.
  • Dividend taxation for individuals: Dividends received from qualifying participations are subject to a reduced tax rate under current law. Under proposed legislation, the taxation would be slightly increased. 

Timeline and Need for Action

The consultation procedure will be finished in December 2014. Depending on the outcome, the government will revisit the proposal. After that, the proposal will be discussed and voted on in the Swiss parliament. Irrespective of a potential call for referendum by the Swiss people, it is unlikely that the new legislation will be enacted before 2019.

The legislative project is controversial and the political debate will likely be intense. Therefore, it is difficult to predict whether or not the Corporate Tax Reform will be implemented as proposed. Parties who are potentially concerned by any of the measures outlined above are advised to await further developments and to monitor the Progress.


Share post


You might also be interested in


most read


Highlights

MLL Legal

MLL Legal is one of the leading law firms in Switzerland with offices in Zurich, Geneva, Zug, Lausanne, London and Madrid. We advise our clients in all areas of business law and stand out in particular for our first-class industry expertise in technical-innovative specialist areas, but also in regulated industries.

MLL Meyerlustenberger Lachenal Froriep

Newsletter

Much is still unclear in relation to liability questions around AI tools.

Read our latest post about “Liability during the Lifecycle of an AI Tool” and download our white paper.

Show article.

Our Story

MLL Legal is a leading Swiss law firm with a history that dates back to 1885. The firm has grown both organically and by means of strategic mergers, the latest of which took place on 1st July 2021 between Meyerlustenberger Lachenal and FRORIEP.

The merger establishes MLL Legal, a combined new entity as one of the largest commercial law firms in Switzerland with 150 lawyers in four offices in Switzerland and two offices abroad, in London and Madrid serving clients seeking Swiss law advice.

Our firm has a strong international profile and brings together recognised leadership and expertise in all areas of law affecting commerce today, with a focus on high-tech, innovative and regulated sectors. 

About us

Publications

Click here for our latest publications

COVID-19

Read all our legal updates on the impact of COVID-19 for businesses.

COVID-19 Information

Job openings

Looking for a new challenge?

Our talented and ambitious teams are motivated by a common vision to succeed. We value open and straightforward communication accross all levels of the organisation in a supportive working environment.

Job openings

Firm News

Click here for our latest firm news.

Our Team

The regulatory and technological landscape continually require businesses to adapt and evolve.
Our 150+ lawyers are continuously innovating and striving for improvement in everything they do. We embrace new ideas and technologies, combining our wealth of expertise with creative thinking and diligence. With our hands-on approach, we implement viable solutions for the most complex legal challenges.

Our Team.

LexCast – the podcast series by MLL NexGen

Smart legal education on the go. The LexCast hosted by MLL NexGen provides legal insights in a short format that allows listeners to educate themselves on and about legal issues wherever they are and whenever they find the time.

Listen to our podcast series – stay tuned.

MLL Legal on Social Media

Follow us on LinkedIn, Twitter und Instagram.