On 12 February 2017, the Swiss corporate tax reform III (CTR III) bill was not approved by Swiss voters requiring Swiss government and parliament to alter the reform proposal. The revised bill is expected in spring 2017 and should enter into force in 2019 at the earliest. The vote is however not connected with the tax rate reductions announced by many Swiss cantons. As planned, reductions are likely to enter into effect as of 2019.
Regardless of the public vote on CTR III the Swiss tax landscape is expected to change significantly over the coming years in an effort of Switzerland to retain its leading position as an attractive international business location:
Tax rate reduction: Many Swiss cantons have announced to significantly lower their overall effective corporate income tax rates. The planned reductions are likely to enter into effect as of 2019. The below chart shows the current (black) and future (colored) effective tax rates of selected Swiss cantons:
Preferential tax regimes: Preferential tax regimes - such as holding, principal, mixed company and finance branch regime - remain in force until the revised CTR III enters into force (in 2019 or later).
Step-up in asset basis: Companies with a Swiss preferential tax regime may benefit from a tax neutral step-up in asset basis (including goodwill) should they decide to renounce the current tax regime on a voluntary basis. Depending on location and the individual facts and circumstances, such step-up can match the effective corporate income tax currently applicable under the regime. Renouncing a tax regime can in certain cases ease international tax compliance burden for companies due to EU tax developments or in view of spontaneous exchange of tax rulings.
- Revised CTR III bill: The Swiss government will present a new corporate tax reform bill which is expected to essentially mirror the one not approved in the vote with the exception of the notional interest deduction. In essence, it is highly likely that the revised bill will also introduce a patent box, tax incentives for R&D as well as a relief on annual capital tax.
Transfer pricing: Intra-group dealings are currently a strong focus internationally, increasing the possibility of cross-border transfer pricing investigations. Reviewing and amending the group wide transfer pricing model is highly recommended in a post-BEPS tax landscape. As of 15 February 2017, Switzerland will introduce revised withholding tax rules which significantly reduce tax risks in a parent-subsidiary constellation. These rules apply retroactively as of 2012 and therefore may solve certain past and future transfer pricing issues.
- EU ATAD & CCTB: The expected reduction in corporate income tax rates in Switzerland can trigger certain issues with the recently adopted EU ATAD rules or the current CCTB proposal. Due to the extensive tax compliance burden in EU member states inbound restructuring to Switzerland is currently a major focus as Switzerland is not required to introduce any of these EU-related measures.
Clients are recommended to consider the above mentioned aspects. Current planning timelines should remain. Restructurings and tax-neutral step-up transactions remain a high priority for 2017/2018.