You are here:
07 September 2017 / article

Public discussion draft on Swiss Tax Proposal 17 released

On 6 September 2017, the Swiss government published the discussion draft on a revised Swiss corporate tax reform package, the Tax Proposal 17 (TP 17). The released public discussion draft on TP 17 confirms the step-up possibilities but does not include a notional interest deduction. Phasing-in to TP 17 is still expected in 2019 / 2020 due to step-up rules.

The draft bill does not contain any significant deviations from the main parameters released back in June 2017. It confirms the step-up possibilities but does not include a notional interest deduction. Phasing-in to TP 17 is still expected in 2019 / 2020 due to step-up rules.

TP 17 public discussion draft

TP 17 aims to replace current preferential tax regimes such as holding, principal, mixed company and finance branch regimes with new tax measures in line with international standards. Although not formally part of the proposal, many cantons already announced significant tax rate reductions. These measures allow Swiss business operations of multinational enterprises to benefit from one of the most competitive tax environments without being subject to scrutiny for certain preferential tax regimes:

Measures TP 17 - Discussion Draft
Patent Box
  • 90% reduction (modified nexus approach)
  • Excluding software but including income from outsourced activities to related parties in Switzerland or third parties
 R&D Super-deduction
  • 50% super-deduction on R&D (salary) expenses
  • Includes outsourced activities 
 Step-up in asset basis in general
  • Tax neutral step-up on immigration or transfer of business operations/functions to Switzerland 
 Step-up in asset basis for regimes
  • Depreciation model on built-in gains/goodwill if tax regime ends
  • Separate rate model applies once TP 17 enters into force
  • Cantons may introduce separate rate model instead of depreciation model already earlier
 Capital tax relief
  • Capital tax relief on qualifying investments (i.e., 10%) and patents 
 Base-erosion limitation
  • Patent box, R&D deduction and step-up for regimes combined cannot exceed 70% of total income
 Abolishing of tax regimes
  • Preferential tax regimes are abolished
 Cantonal tax rate reductions
  • Cantons to significantly reduce tax rates (e.g. 12-12.5%)

Conclusion

The public discussion draft does not contain significant surprises if compared to the main parameters published in June 2017. Even though the bill does not contain a notional interest deduction for intra-group financing, the canton of Zurich has recently stepped-up his efforts to introduce such a measure in the final reform package. More sophisticated models for intra-group financing may however be an alternative to such regimes.

Also given the reductions of effective overall corporate income tax rates in certain Swiss cantons to about 12% and taking into account the new step-up possibilities, Switzerland will maintain its ranking as a highly attractive environment for long-term and secure investments.

Next steps for the TP 17 draft bill

The results from the public consultation are expected to be published in December 2017 and will be discussed in the Swiss parliament in spring 2018. Whereas the government now expects the reform to enter into force in 2020 some of the rules may already have an impact in 2018/2019 (see below).

Next steps for you

We recommend you to consider all elements of TP 17 and continue their ongoing adoption process. Inbound restructurings, transfer pricing reviews and tax neutral step-up transactions remain a high priority.

Most importantly, the TP 17 draft bill allows cantons to early adopt the so-called separate rate model if a Swiss entity no longer applies a preferential tax regime (step-up with separate taxation). This possibility may enter into force before the full reform is enacted and may, thus, limit the possibility for a step-up under current rules (step-up with depreciation). Cantons are therefore expected to publish their intentions during the consultation process. Clients are recommended to continue closely monitoring their phasing-in options as an early step-up can produce more beneficial results for some businesses.

Also mandatory CFC rules in EU member states are now most likely to outpace the timing for TP 17 meaning that Swiss operations of multinationals will have to adopt to these rules before the reform is finalized. Loyens & Loeff is working on tailor-made multi-jurisdictional solutions with clients in order to ensure a smooth and efficient transition from the current Swiss tax environment to a post-2019/2020 world, both in Switzerland and the European market.

 

 



MiFID II/MiFIR: The extraterritorial scope of the new EU share trading obligation

The prospectus obligation under the FinSA

FinSA is part of CH new financial market architecture. If enacted as drafted today, the FinSA will introduce new rules for the prospectus obligation. read more
Rights to withdraw consent, object and lodge a complaint with a supervisory authority under the GDPR and DPA

Rights to withdraw consent, object and lodge a complaint with a supervisory authority under the GDPR and DPA

Learn more about the rights to rectification, erasure and restriction under the GDPR and DPA. read more

Questions and answers regarding ICOs in Switzerland

We offer regulatory, corporate and tax advice specifically on FinTech, cryptocurrencies and ICOs/TGEs. Read our Q&A from a Swiss point of view. read more