Swiss Tax Reform Proposal 17: Steering Committee issues recommendations - Banking blog

Swiss Tax Reform Proposal 17 Steering Committee issues recommendations

The Steering Committee with representatives from cantons and the Swiss Federation on 1 June 2017 issued its recommendations to the Swiss Federal Council for a well-balanced Swiss Tax Reform Proposal 17 (STR 17, formerly known as Swiss Corporate Tax Reform III or CTR III) and considers a swift implementation of the reform as key.

The Steering Committee held a total of five meetings between March and May of 2017. Representatives of cities and municipalities were also invited to one of these meetings. This ensured that the municipal requirements were taken into account in the recommendations. In addition, consultations were held with political parties as well as business associations and labor unions for the making of STR 17. All sides supported the parameters of STR 17 and stand behind the following main goals of the reform, which are to ensure: the attractiveness of Switzerland as a business location, international acceptance of the Swiss corporate tax law and sustainable tax revenues. 

Main proposed changes compared to CTR III

Taking into account the above, the Steering Committee recommends essentially the following main changes to CTR III which was rejected in its proposed form by the Swiss voters on 12 February 2017:

  • The Notional Interest Deduction (NID) on federal and cantonal level is no longer part of the package;
  • The partial taxation for individual shareholders holding at least 10% would be increased to 70% from 60% on a federal level and mandatorily to 70% for all cantons;
  • The combined tax relief for the Patent box, the R&D super deduction and the amortization from the step-up of hidden reserves due to a status change prior to STR 17 shall be limited to a maximum of 70% (previously 80%) on a cantonal and communal level.
    • (Important to know is that there is no limitation for the tax-privileged release of hidden reserves on a status change due to CTR III on cantonal level and for step-up in case of migration into Switzerland on cantonal and federal level).

Main proposed elements of STR 17

Accordingly, the STR 17 contains the following main elements:

  • The sunset of all special corporate tax regimes, such as the mixed, domiciliary, holding and principal company regimes, as well as the Swiss finance branch regime;
  • A reduction of the general cantonal/communal tax rates at the discretion of the individual cantons;
  • The introduction of a mandatory cantonal-level patent box regime applicable to all patented intellectual property (IP) for which the research and development (R&D) spend occurred in Switzerland, based on the OECD modified nexus approach;
  • The introduction of cantonal R&D incentives in the form of deductions of up to 150% of qualifying R&D expenditure at the discretion of the individual cantons;
  • A step-up of asset basis (including for self-created goodwill) for direct federal and cantonal/communal tax purposes upon the migration of a company or additional activities and functions into Switzerland;
  • The tax-privileged release of “hidden reserves” for cantonal/communal tax purposes for companies transitioning out of tax-privileged cantonal tax regimes (such as mixed or holding companies) into ordinary taxation;

Expected Timeline

The Federal Council will in the course of June 2017 decide on the basic parameters of STR 17. The Swiss Federal Department of Finance will then prepare a draft bill for the consultation process, which is expected to be completed by December 2017. The adoption of the dispatch of the bill to the Swiss Parliament is scheduled for spring 2018.

The Steering Committee considers a swift implementation of STR 17 at the cantonal level to be extremely important. The cantons are therefore supposed to push the cantonal implementation of the law parallel to the federal bill. This compels the cantons to shorten their usual legislative periods, which the Steering Committee considers necessary because of the urgency of the legislative proposal. Based on the above, STR 17 could come into force by January 1, 2020 or 2021, with corresponding transition periods lasting till 2025 or 2026. 

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Jackie Hess - Managing Partner, Tax & Legal

Jackie is the Managing Partner for Tax & Legal and a member of the Swiss Executive team. She has more than 20 years of experience serving some of Deloitte’s largest multinational clients. Her areas of focus include business model optimization in the BEPS era, Swiss ruling and tax holiday negotiations, tax controversy, and audit defense. In addition, she has extensive experience in cross-border tax planning including substance reviews, IP structuring, and finance planning. Jackie’s industry focus is life sciences where she advises predominately US-listed companies in the biotech and medtech space that have their European headquarters in Switzerland.

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Reto Savoia - Deputy CEO and Managing Partner, Clients & Markets

Reto is the Deputy CEO for Deloitte in Switzerland and the Managing Partner for Clients & Markets. Reto is a Swiss international corporate tax specialist with more than 15 years of experience in the area of cross-border structuring, M&A and business reorganisations. Reto is also a member of the board of Deloitte UK.

Jacques Kistler

Jacques Kistler - Partner, International Tax

Jacques is the Lead Partner of our Corporate Tax service line in the French Speaking part of Switzerland, covering international tax and M&A. He has been a full time International Corporate Tax specialist for over 23 years.

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Raoul Stocker - Partner, Business Tax Leader Zurich

Raoul Stocker is a tax partner with more than 15 years’ experience specifically in international tax litigation such as mutual agreement procedures and advanced pricing agreements. His focus lies on corporate tax planning, cross-border structuring of corporate transactions and businesses, transfer pricing as well as taxation of financial institutions. Raoul is also a lecturer of transfer pricing and tax law at the University of St. Gallen.

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Peter Brülisauer - Partner, International Tax

Peter is a tax partner with extensive experience in advising multinational companies on tax matters. This includes corporate restructuring, acquisition, finance restructuring, IP- and R&D-planning, cross-border tax planning, tax effective supply chain management as well as function and risk allocation within multinational groups. He also specialises in permanent establishment (PE) planning as well as profit attribution between PEs. Peter is lecturer in national and international taxation at the University of St. Gallen and a frequent speaker at tax conferences. He has a PhD in Law, University of St. Gallen and is Swiss Certified Tax Expert.

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Rene Zulauf

René Zulauf - Partner, International Tax

René has more than 15 years of experience in the field of international tax structuring, financial services tax and Mergers & Acquisitions. He specializes in cross-border tax planning and has assisted numerous multinationals in particular in the establishment of Swiss finance and IP structures, as well as in the structuring of Swiss trading and principal/headquarter operations.

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