Corporate Tax Reform III

Transcription

1 Corporate Tax Reform III Rejected by Swiss voters - what s next? 17 February 2017

2 Today s moderators Daniel Gentsch Managing Partner Tax, EY Switzerland Rainer Hausmann Partner, Tax Services, EY Switzerland Stefan Rüst Manager, Tax Services, EY Switzerland Phone: daniel.gentsch@ch.ey.com Phone: rainer.hausmann@ch.ey.com Phone: stefan.ruest@ch.ey.com Page 2

3 Agenda 1. Welcome & Introduction 2. Overview of key measures of CTR III 3. Voting results 4. Reactions to the vote 5. Plan going forward 6. Possible changes related to the tax reform 7. Timing 8. Key take aways Page 3

4 Overview of key measures of CTR III (1/2) Federal Act on Harmonization of Direct Taxes / Federal Act on Direct Federal Taxation Details on key measures (as decided by Swiss parliament) Final vote of 17 June 2016 Patentbox (mandatory at cantonal level) R&D super deduction (optional at cantonal level) Notional interest deduction (mandatory at federal and optional at cantonal level) Step-up / Transitional measures Current system (i.e. prior to CTR III) New system (i.e. according to CTR III Restriction of overall tax relief OECD nexus approach 90% exemption (maximum) Entry cost spread over 5 years Concessions for SMEs Subject to the overall tax relief of maximum 80% (in combination with other measures) Deduction restricted to maximum 150% No extension to R&D activities performed abroad R&D expenses to be defined by the Federal Council Subject to the overall tax relief of maximum 80% (in combination with other measures) On safety equity capital Notional interest rate set at the level of 10 years Swiss federal state bonds (i.e. no additional plus of 0.5%), but with regard to intra-group financing the arm s length principle for determination of the notional interest rate could be applied At the cantonal level, the NID should be applicable only if a maximum 40% exemption applies for dividend income from qualifying participations held as private assets (i.e. harmonized limitation of the partial dividend taxation if the NID is implemented or activated in the cantonal law) Subject to the overall tax relief of maximum 80% (in combination with other measures) Voluntary waiver of cantonal tax privilege prior to reform leading to an amortization period of 10 years on disclosed built-in gains To be adequately considered within the equalization of resources between the cantons for a transitional period of 5 years Subject to the overall tax relief of maximum 80% (in combination with other measures) Two-rate system (tax systematic transition of built-in gains into new system) Immigration step-up (disclosure of built-in gains upon immigration to CH) Two-rate system and immigration step-up are not subject to the overall tax relief of maximum 80% Restriction of overall tax relief (patentbox, super deduction, NID and step-up) to maximum 80% Amortization on disclosed built-in gains relating to step-up under current system to be considered within the restriction of overall tax relief to maximum 80% (i.e. comparison between taxable profit with and without amortization) Page Page 4

5 Overview of key measures of CTR III (2/2) Federal Act on Harmonization of Direct Taxes / Federal Act on Direct Federal Taxation Details on key measures (as decided by Swiss parliament) Final vote of 17 June 2016 Target relief of capital tax On net equity related to participations, intangible assets and intercompany loans Abolishment of one-time capital duty To be included in a separate draft bill Tonnage tax (at federal and cantonal level) Special taxation of shipping industry (based on tonnage) To be included in a separate draft bill Rejection to Federal Council for detailed drafting, review of the constitutional basis and for a formal consultation process Amendment of partial dividend taxation (at cantonal level) No comprehensive harmonization of partial dividend taxation at the cantonal level However, a maximum 40% exemption at cantonal level applies for dividend income from qualifying participations held as private assets, if the respective canton decides to implement/activate the notional interest deduction (NID) in its cantonal law Stake of cantons in the direct federal tax 21.2% (counter-financing measure) Final vote of Swiss parliament took place on 17 June 2016 Optional referendum by Socialist Party / public vote took place on 12 February 2017 Corporate Tax Reform III rejected by public vote Page Page 5

6 Voting results Voting results in the cantons: BS SH TG 59.1% of the voters have rejected the Corporate Tax Reform III VD NE FR JU SO BE BL AG LU O W N W ZG ZH UR SZ GL AR AI SG GR Approval according to different parties: 80% 70% 60% GE VS TI 50% 40% 30% < 65% NO % NO % NO % NO % YES 20% 10% 0% FDP SVP CVP GLP BDP SP Green Party Page Page 6

7 Reactions to the vote International voice Pascal Saint-Amans OECD Tax Director «Yesterday s rejection of the tax reform is not fatal to Switzerland s ability to meet its international commitments». «Switzerland s partners will expect it to implement its international commitments within a reasonable time period and this need not happen within the context of a wider reform, which could take longer than the two years originally foreseen for these changes.» Pierre Moscovici European Commissioner for Economic and Financial Affairs told at a news conference: «The Commission is very disappointed by the results of a referendum in Switzerland». US Newspaper The New York Times German Newspaper Frankfurter Allgemeine Zeitung «Swiss voters reject tax reform: The government in Berne has to find a new solution to maintain the attractiveness of Switzerland as a business location. Time is running out.» «The USA and UK have announced tax reductions for companies. Switzerland could have had the chance to react to this measures. Instead, with the rejection they have now challenged their own country.» «It will not be possible to find a solution overnight, Mr. Maurer said at a news conference in Bern, adding that it could take a year to come up with a new plan and years more to encat it.» «Many Swiss citizens believe that the country needs changes to avoid being blacklisted by other countries for its low taxes. But new proposals to help companies offset the loss of their special-status breaks have created deep divisions.» Page Page 7

8 Reactions to the vote Swiss voices Ueli Maurer Swiss Finance Minister «Firstly, an in-depth analysis with the cantons is needed. Furthermore, the cantons will have to reach a common position with the cities, which were mainly against the reform.» «After the Federal Council discusses and agrees to a new law, the Swiss parliamentary process will start. For the implementation of a new package additional two years are required. According to this timetable, a new proposal could approximately come into force as of 2021 or 2022.» Pascal Broulis Finance Director of the Canton Vaud «In Vaud, the CTR III has been accepted with 51.3% yes votes. This result confirms our implementation plan.» Eva Herzog Finance Director of the Canton Basel-City «The cantons are not in a position to resolve the problem on their own. We need a compensation from the Federation.» Heinz Karrer President of the Swiss business lobbying group economiesuisse...in an interview with the Newspaper NZZ: NZZ: Would it have been better if the economy had renounced the privileged tax regimes in order not to trigger a referendum? Karrer: «If for example the NID had been excluded from the reform, it would have been more likely to find a compromise. However, one is always wiser after the event.» Page Page 8

9 Reactions to the vote Plan going forward (1/2) Beat Jans Member of the National Council and the Socialist Party «Key points of the proposed Plan B by the Socialist Party: (1) The proposed notional interest deduction shall be excluded from the reform. (2) The proposed R&D super deduction for cantons shall be excluded as well. (3) The proposed way of implementing the patentbox shall be restricted. In particular software development should not qualify for the patent box. (4) Dividend income from qualifying participations held as private assets shall be taxed not below 80%. Whereby a maximum exemption of 20% would be applicable. (5) Introduction of the capital gain tax for private individuals. (6) The compensation payments from the Federation to the cantons shall be discussed in comparison with the rejected reform package.» Petra Gössi President of the FDP «The biggest challenge of the public vote was the uncertainty regarding the implementation plans at cantonal level. If the Swiss voters do not know the impact of such a reform then a positive voting result becomes difficult. In the next reform the cantons should show the concrete impact of the implementation at cantonal level as well as with regard to the cities.» «Options like the partial dividend taxation now need to be discussed in more detail. The left-wing parties propose to introduce a capital gain tax for private individuals. However, as this proposal was clearly rejected in a recent popular vote we will not follow up on this proposal.» Jans added that the partial dividend taxation and the stake of cantons in the direct federal tax still need further discussion within the party. Plan B shall be presented to the Swiss parliament in the March session. Page Page 9

10 Reactions to the vote Plan going forward (2/2) Serge Dal Busco Finance Director of the Canton Geneva «After the rejection of the CTR III the government of Geneva will keep its implementation plan. Maybe some adjustments are needed but the announced corporate tax rate of 13.49% should remain unchanged in order to prevent reallocation of companies.» Pascal Broulis Finance Director of the Canton Vaud «The Canton of Vaud will keep its implementation plan as the Vaud voters accepted the CTR III.» Ernst Stocker Finance Director of the Canton Zurich... was asked in an interview with the Newspaper NZZ: NZZ: «Ruedi Noser, member of the Council of States, claims that the cantons should get active by their own and not wait for a new federal proposal.» Stocker: «We cannot take stand-alone actions because we will face a lack of approximately 180 million Swiss Francs paid by the Federation. This amount was included in the rejected tax reform as a compensation measure. Furthermore, I do not think that the voting result means that the corporate income tax rates need to be reduced.» Page 10 Page 10

11 Plan going forward Plan A Proposal of the Swiss Parliament dated 17 June 2016 Rejected by the Swiss voters on 12 February 2017 Plan B New package with leaner measures than Plan A Plan C Split of a new Corporate Tax Reform into two tranches e.g. no NID, amended patent box, no or adjusted super deduction, etc. Counter financing measures (e.g., increased partial taxation on dividends) Tranche 1 Abolition of tax regimes Step-up / two-rate system Transition period of 5 years Adjustments with regard to the equalization of the resources between cantons Fast implementation possible on cantonal level? Tranche 2 Amended measures (e.g., patent box, NID?, R&D super deduction, reduction of overall cantonal tax relief, other measures) Counter financing measures (e.g., increased partial taxation on dividends) Page 11 Page 11

12 Possible changes related to the tax reform Measures Outlook Comments Abolition of tax regimes Commitment to the OECD / Joint Statement Switzerland - EU Notional interest deduction X Controversial measure, will probably not be included in the new proposal. Optional at cantonal level? Patentbox? Still in, but probably without software as qualifying IP / exemption may be adjusted (lower than 90%) R&D super deduction? Uncertain Disclosure of hidden reserves Restriction of overall tax relief Stake of cantons in the direct federal tax Cantonal tax reduction Measure is already available in some cantons. In the rejected CTR III this measure was not disputed Restriction of overall tax relief to maximum 80% was not disputed in the rejected CTR III. However, adjustments downwards could be possible Potential financing measure for the communes considered in the stake from direct federal tax Actual stake of cantons in the direct federal tax: 17%; according to the rejected reform: increase to 21.2%; discussions are going on in connection with the future stake of cantons Most cantons with tax rate reductions had confirmed, that it is not intended to abandon this measure Amendment of partial dividend taxation? Tax relief for individuals on qualifying dividend income may be reduced Taxation of capital gains? Desired by Socialist Party, but highly contested by center- and right-wing parties Page 12 Page 12

13 Timing Possible scenario for Plan C Tranche 2 Decided by the Swiss parliament until then: Patentbox R&D super deduction Notional interest deduction Amendment of partial dividend taxation Overall tax relief Introduction on cantonal level in 2020, 2021, TBD Tranche 1 Decided by the Swiss parliament until then: Abolition of tax regimes Step-up / two-rate system Amortization over 5 years Effective as per 1 January 2019 Page 13 Page 13

14 Key take aways Rejection of CTR III changes nothing for Swiss-based companies in the short term Current corporate tax laws remain in force Current tax regimes should generally remain available until a revised tax reform is passed and effectively enacted Federal Council will quickly prepare a revised bill on tax reform in close consultation with all necessary parties Timing: delay by one to three years Ongoing dialogue with the EU and the OECD Cantons may adopt unilateral changes to their cantonal tax laws within the framework of the federal tax harmonization law (e.g., reduction of the corporate tax rates) Numerous cantons are already providing very attractive low statutory tax rates between % (incl. federal tax) Most cantons allow a tax-neutral disclosure of built-in gains upon a change of the cantonal tax status resulting in a comparable low cash tax rate during the subsequent amortization period (step-up) Voluntarily exit of a preferential tax regime before a revised version of CTR III is effectively implemented Despite of the referendum and the resulting delay of tax reform, Switzerland remains an attractive business location with its highly skilled workforce, excellent infrastructure, and the overall attractive tax environment. Page 14 Page 14

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