Key issues of planned Swiss corporate tax reform III

Transcription

1 Key issues of planned Swiss corporate tax reform III October 2015 Christoph Niederer, VISCHER Ltd. 1

2 Swiss Corporate Tax Reform III Agenda Introduction Current situation Framework of reform Proposed measures Conclusion Expected Timeline Examples 2

3 VISCHER at a Glance Independent commercial law firm Offices in Zurich and Basel Approximately 100 attorneys, notaries und tax experts Continued growth Strong roots in growth industries (Energy, Life Sciences, IT, new media) International network Top-qualified staff 3

4 Clients Swiss Liquidators of 4

5 Current situation Most popular current tax structures Structure Effective tax rate Holding company 7.8 % Mixed company % Domiciliary company 7.8 % Principal company 4-10 % Finance branch 2-5 % Ordinary profit tax rates between 11 and 24 % depending on canton. 5

6 Framework of tax reform Abolishment of existing tax regimes due to increasing pressure of EU states as well as OECD. Preservation of attractive tax environment. Affordability of reform / maintenance of tax income for Federation and cantons. Acceptance of most of cantons as well as of majority of Swiss voters (possible referendum). Compliance with EU / OECD standards and BEPS. 6

7 Proposed measures On June 5, 2015 the Federal Council has submitted the proposal on the new law to the Swiss Assembly. It basically provides for the following measures: 1. abolishment of cantonal tax privileges; 2. patent box on cantonal tax level; 3. additional deductions of R&D costs; 4. reduced capital tax. 7

8 Proposed measures 5. Abolishment of stamp duty on equity. 6. Step-up (related to hidden reserves / unrealized capital gains). 7. Reduction of ordinary profit tax rates. 8

9 Proposed measures: 1. Abolishment of cantonal tax privileges For transitional period of 5 years see measure 6. stepup. 9

10 Proposed measures: 2. Patent Box Switzerland respects international standard. New OECD draft will be published in October Conditions for Patent Box: income from active patents or from functionally equivalent assets (legally protected and subject to approval and registration); residual method to determine relevant income; proof of R&D activities at place of taxation ("Nexus Approach"). 10

11 Proposed measures: 2. Patent Box Related party outsourcing and acquisition costs will not qualify, but up-lift 30 % on qualifying expenses Cap of maximal reduction at 90 % but, R&D costs for unsuccessful research can be set off against ordinary profit. As actual OECD restrictions have to be considered: details will be determined in ordinance instead of a law (more flexible). When entering into Patent Box: Recapture Rule (taxation of past deducted R&D costs; identification per product). Effective tax rate of Patent box: approx. 10 %. 11

12 Proposed measures: 3. Additional R&D costs Additional deductions of R&D (+ Innovation) costs ("input support") on cantonal level: currently applicable in most of OECD states; multiple deduction of R&D costs or tax credits; relevant types of R&D (+I) expenses, incurred for a R&D activities in Switzerland: salaries costs for production plants and raw material financing costs indirect costs outsourcing costs. 12

13 Proposed measures: 4. Reduced capital tax Reduced capital tax on capital related to patents and the like as well as related to participations: Companies with cantonal tax privileges currently benefit from preferential capital tax rate. Cantons shall have the possibility to reduce capital tax related to participations and intangible assets in order to avoid negative impact of abolishment of tax regimes. Target group : multinational companies, i.e. European or Global headquarters. 13

14 Proposed measures: 5. Abolishment of stamp duty on equity Currently 1 % stamp duty on equity above threshold of CHF 1 Mio. Today often (even interest free) loans granted instead of equity. Abolishment of stamp duty should attract large companies with high demand for capital and larger investment volumes. Allows balanced corporate financing of companies without consideration of tax aspects. 14

15 Proposed measures: 6. Step-up At the time of immigration into Switzerland: depreciation of hidden reserves (including selforiginated goodwill!) over a period of max. 10 years. Upon change of tax law in course of CTR III: hidden reserves of companies with currently special status: reduced tax rates applicable within 5 years after change of law. 15

16 Proposed measures: 7. Reduction of ordinary tax rates Simplest measure however different impact on cantons. Due to the reform Cantons participate to a higher extent in federal taxes; this allows a decrease of cantonal corporate tax rates. Inter-cantonal tax competition persists. Aim of cantons with actual low tax rates: reduce ordinary tax rates to current rates for privileged companies; also interesting for ordinary taxed entities. Expected tax rates between 11 and 14 %. 16

17 Conclusion International tax competition on "level playing field. Internationally accepted tax models enhanced sustainability and stability. Step-up in course of CTR III allows existing companies to preserve their current taxation to a large extent for the next years. Strengthening of R&D activities (input support). Increased attractiveness for companies through abolishment of stamp duty and reduction of capital tax. Ordinary tax rates will be considerably lower. 17

18 Expected Timeline June 2015: submission of proposal to Swiss Assembly 2015/2016: discussion of proposal within Swiss Assembly; amendments possible 2017: possible referendum (public vote) January 1, 2018: entry into force (including time for referendum) 18

19 Example I: Relocation of functions / activities to Switzerland: release of hidden reserves Hidden reserves on trade names 50 Goodwill 100 Corporate tax rate 14% Taxes EBITDA /. Depreciation of hidden reserves taxable profit tax rate (14 %) ETR hidden reserves goodwil trade names total hidden reserves balance sheet current assets IT trade names total assets liabilities

20 Example II: Realisation of hidden reserves generated under mixed company status Hidden reserves 400 Ordinary corporate tax rate 14% Special cantonal tax rate 2% Initial situation 2018 % inland net income before tax % foreign net income before tax % thereof taxable in CH (15% of the foreign gain) % total taxable net income before tax in CH % 76.5% not taxable in CH Tax burden EBITDA relevant hidden reserves realisation of hidden reserves ordinary taxable taxes tax rate special tax rate on realisation of hidden reserves generated under mixed company status 2% standard tax rate 6% federal tax rate 8% ETR expired 20

21 Contact Christoph Niederer VISCHER Ltd. Zurich Attorney at Law, Swiss Certified Tax Expert, Partner Phone:

22 Thank you. Zurich Basel Schützengasse 1 Aeschenvorstadt Zürich 4010 Basel Tel: Tel: Fax: Fax: