The Swiss Tax Reform and AHV Financing bill (TRAF, formerly known as Swiss Tax Reform 17 and Swiss Corporate Tax Reform III) will officially be subject to a referendum, as mainly a left wing alliance of junior green and junior socialist parties has secured more than 50’000 signatures against the proposed law. 50’000 signatures are necessary for a respective public vote on the law. The public vote is now scheduled for 19 May 2019.

Public vote on 19 May 2019, if approved, law likely effective 01/01/2020

In case the law is confirmed in the public vote on 19 May 2019, it is expected to come into effect as per 01 January 2020 on a federal level.

Sunset of all special Swiss corporate tax regimes, likely per 01/01/2020

Under the reform all special Swiss corporate tax regimes, i.e. the mixed company, the holding company, the domiciliary company, the principal company (governed by Federal Circular Letter No 8) and the finance branch regime are scheduled to sunset likely as per 01 January 2020. These regimes will be replaced with measures that are both internationally accepted and that ensure Switzerland will remain attractive for multinational companies.

Transitional rules for sunsetting regimes

The sunset of these special tax regimes is subject to transitional rules. These rules should enable companies benefitting from such regimes to maintain their existing level of taxation (including for financial statement purposes under IRFS or U.S. GAAP) by way of a special release of hidden reserves mechanism for another five years after the sunset of the regimes per 01 January 2020, depending on their specific facts and circumstances.

Main replacement measures for corporate taxpayers

• Reduction of general tax rates at the discretion of the individual cantons, where the majority of cantons will be in the 13 – 14 % tax rate range (effective combined federal/cantonal/communal tax rate, ETR) with some cantons with an ETR as low as 12%, such as Zug, Schwyz or Lucerne.
• Introduction of a Patent Box, which is following the so-called modified nexus approach by the OECD on a cantonal level with a tax relief for qualifying income of up to 90%. The proposed law allows for flexibility with regard to outsourced functions and covers Swiss and foreign patents as well as patent equivalent rights.
• Introduction of R&D super-deduction at the cantonal level up to a maximum of 150% of the effective qualifying expenses. The reform provides for a wide application of R&D activities that may benefit, including basic research as well as scientific application and knowledge based R&D.
• Step-up upon migration of a company or of activities and functions to Switzerland: A step-up would be allowed for direct federal and cantonal/communal tax purposes (including on self-created goodwill) for companies or additional activities and functions migrating to Switzerland.
• Reduction of the cantonal/communal annual capital tax in relation to participations, patented intellectual property and intercompany loans at the discretion of the individual cantons.
• Cantons with a “high” cantonal tax rate may introduce a notional interest deduction (NID) on a cantonal level. This may only benefit the canton of Zurich and potentially very few additional selective cantons with high enough tax rates.

Attractiveness of the reform and odds of passing the public vote

The current tax reform bill represents a well-balanced and internationally competitive solution that would ensure that Switzerland stays an attractive location for multinationals and domestic companies alike, while at the same time providing an internationally aligned tax system that is in conformity with international standards, such as OECD BEPS and others.

The bill is well supported by almost all the relevant stakeholders, from business associations to unions and by the whole political party spectrum, including the major left wing parties, who were formerly critical of the reform. We therefore currently deem the odds to be more likely than not that the bill will be confirmed in the public vote. However, the decision will be with the Swiss voter.

See also: Swiss Corporate Tax Reform 2017: Swiss National Council approves reform

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.

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Jacques Kistler - Partner, Business Tax Leader Geneva

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, Global Tax Reset Leader

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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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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Daniel Stutzmann - Partner, International Tax

Daniel has more than 10 years of experience in the field of international tax structuring. He specializes in business optimization and cross-border tax planning, including the establishment of Swiss trading and principal/headquarter operations of multinationals.

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