CHAMBERS INTRODUCTION DENMARK BELGIUM AUSTRALIA SWITZERLAND Corporate Tax Global Practice Guides LAW AND PRACTICE: LAW AND PRACTICE: Contributg Editor Contributed Gorrissen BaelSmith &Federspiel Bellis Contributed by by Van Herbert Freehills Contributed by Lenz & Staehel p.<?> p.3 p.3 Casiello Jr. LawNicholas and Practice Switzerland Law & provide Law & Practice Practice s s provide easily easily accessible accessible formation formation on on Law &the Practice s provide easily accessible formation on Fox Rothschild LLP navigatg legal system when conductg busess the jurisdicnavigatg the legal system when conductg busess the jurisdicnavigatg thelawyers legal system when conductg busess transactional the jurisdiction. Leadg expla local law and practice at key tion. Leadg lawyers expla local law and practice at key transactional Contributed by tion. Leadg lawyers expla local law and practice at key transactional stages and for crucial aspects dog busess. stages stages and and for for crucial crucial aspects aspects dog dog busess. busess. Lenz & Staehel DOING BUSINESS IN BELGIUM: DENMARK: DOING BUSINESS IN AUSTRALIA: SWITZERLAND: p.<?> p.<?> p.374 Chambers & Partners employ aa large team full-time researchers (over Chambers & Partners employ large team full-time researchers (over Chambers & Partners employ a large team full-time researchers (over 140) their London fice who terview thousands clients each 140) their London fice who terview thousands clients each 140) their London fice who terview thousands clients each year. This is based on these terviews. advice this year. This is based on these terviews. advice this year. This is based on these terviews. advice this is based on the views clients with -depth ternational experience. is is based based on on the the views views clients clients with with -depth -depth ternational ternational experience. experience. 2018
SWITZERLAND LAW AND PRACTICE: p.3 Contributed by Lenz & Staehel Law & Practice s provide easily accessible formation on navigatg the legal system when conductg busess the jurisdiction. Leadg lawyers expla local law and practice at key transactional stages and for crucial aspects dog busess.
Law and Practice SWITZERLAND Contributed by Lenz & Staehel Author: Jean-Blaise Eckert Law and Practice Contributed by Lenz & Staehel CONTENTS 1. types Busess Entity, Residence and Tax Treatment p.4 1.1 Corporate Structures and Tax Treatment p.4 1.2 Transparent Entities p.4 1.3 Determg Residence p.4 1.4 Tax Rates p.4 2. Key Features the Tax Regime p.4 2.1 Calculation Taxable Prits p.4 2.2 Special Incentives for Technology Investments p.5 2.3 Other Special Incentives p.5 2.4 Basic Rules on Loss Relief p.5 2.5 Limits on Deduction Interest p.5 2.6 Basic Rules on Consolidated Tax Groupg p.5 2.7 Capital Gas Taxation p.5 2.8 Other Taxes on Transactions p.5 2.9 Other Notable Taxes p.6 3. division Tax Base Between Corporations and Non-Corporate Busess p.6 3.1 Closely Held Local Busesses p.6 3.2 Corporate Rates and Individual Rates p.6 3.3 Accumulation Earngs for Investment Purposes p.6 3.4 Sales Shares Closely Held Corporations p.6 3.5 Sales Shares Publicly Traded Corporations p.7 4. Key Features Taxation Inbound Investments p.7 4.1 Withholdg Taxes p.7 4.2 Primary Tax Treaty Countries p.7 4.3 Use Treaty Country Entities by Non-Treaty Country Residents p.7 4.4 Transfer Pricg Issues p.7 4.5 Related Party Limited Risks Distribution Arrangements p.7 4.6 Variation from OECD Standards p.8 5. Key Features Taxation Non-Local Corporations p.8 5.1 Taxation Non-Local Corporation Versus Local Subsidiaries p.8 5.2 Capital Gas Non-Residents p.8 5.3 Change Control Provisions p.8 5.4 Determg the Income Foreign-Owned Local Affiliates p.8 5.5 Deductions for Payments by Local Affiliates p.8 5.6 Contrats on Related Party Borrowg p.8 6. Key Features Taxation Foreign Income Local Corporations p.8 6.1 Foreign Income Local Corporations p.8 6.2 Non-Deductible Local Expenses p.8 6.3 Taxation on Dividends from Foreign Subsidiaries p.8 6.4 Use Tangibles p.9 6.5 Taxation Income Non-Local Subsidiaries Under CFC-Type Rules p.9 6.6 Taxation on Ga on the Sale Shares Non-Local Affiliates p.9 7. Anti-Avoidance p.9 7.1 Overarchg Anti-Avoidance Provisions p.9 8. Other p.10 8.1 Regular Route Audit Cycle p.10 9. BEPS p.10 9.1 Recommended Changes p.10 9.2 Government Attitude p.10 9.3 Prile International Tax p.10 9.4 Competitive Tax Policy Objective p.10 9.5 Key Features Competitive Tax System p.10 9.6 Proposals for Dealg with Hybrid Instruments p.10 9.7 Territorial Tax Regime p.10 9.8 CFC Proposals p.10 9.9 Anti-Avoidance Rules p.11 9.10 Transfer Pricg Changes p.11 9.11 Transparency and Country by Country Reportg p.11 9.12 BEPS Process p.11 3
SWITZERLAND Law and Practice Contributed by Lenz & Staehel Author: Jean-Blaise Eckert Lenz & Staehel is a full-service firm with a significant expertise tax, bankg and fance, M&A, private client, labour law, immigration and trusts. firm has fices Geneva, Zurich and Lausanne. Author Jean-Blaise Eckert heads the tax department Geneva. He has additional expertise private client work. Mr Eckert is Secretary General IFA. 1. Types Busess Entity, Residence and Tax Treatment 1.1 Corporate Structures and Tax Treatment Most busesses volvg multiple dividuals choose to adopt a corporate form, with the most common forms beg the company limited by shares ( société anonyme or SA ) and the limited liability company ( société à responsabilité limitée or Sàrl ). company limited by shares is best suited for major busesses, as it requires a large amount capital contribution: share capital must amount to at least CHF100,000. limited liability company requires a mimum share capital CHF20,000, and is more suited to small and medium-sized busesses. Corporations are recognised as separate legal entities, and are taxed as such on their prits and their capital. 1.2 Transparent Entities Transparent entities under Swiss law clude the simple partnership ( société simple ), the general partnership ( société en nom collectif ), and the more frequently used limited partnership ( société en commandite ). Such partnerships are created for the sake simplicity and flexibility. Swiss law also allows for specific transparent entities for collective vestment schemes, namely the open-ended vestment company ( société d vestissement à capital variable or SICAV ) and the limited partnership for collective vestment ( société en commandite de placements collectifs or SCPC ). Transparent entities are taxed on their prits and their capital the hands the partners, rather than as separate entities. 1.3 Determg Residence Swiss law defes the residence a corporation by two alternative criteria, namely its statutory seat and its effective place management. Transparent entities are considered residents sar as their partners themselves are residents. 1.4 Tax Rates Corporations are taxed on their prits at the federal level at an effective rate 7.83%, as well as at the cantonal and communal levels, brgg their effective tax rate to a total 12-24%, dependg on the location. Corporations are also taxed on their capital at the cantonal and communal levels. prits and wealth partnerships are taxed the hands the partners, meang that the tax rates will depend on the personal tax rate each partner. Such tax rate varies accordg to the partner s total come and wealth, and place residence. 2. Key Features the Tax Regime 2.1 Calculation Taxable Prits Taxable prits are based on the accountg prits, specifically the balance the prit and loss account. Three types adjustments for tax purposes may take place: adjustments to ensure compliance with mandatory accountg rules; adjustments to ensure compliance with the periodicity prciple; and adjustments aimed at preservg the system when Switzerland loses its taxg rights, for example the case a transfer abroad. Like all entities legally required to mata accounts, corporations are taxed on their prits on an accruals basis. 4
Law and Practice SWITZERLAND Contributed by Lenz & Staehel Author: Jean-Blaise Eckert 2.2 Special Incentives for Technology Investments re are no specific R&D tax centives Switzerland, but there is a patent box the canton Nidwalden, applicable at the cantonal level only. A new reform project called Tax Proposal 17 tends to troduce a super-deduction for R&D expenses, as well as a Swiss-wide patent box at the cantonal level. 2.3 Other Special Incentives Other special tax centives clude preferential taxation prits for holdg companies, domiciliary companies, mixed companies, prcipal companies and Swiss fance branches. Such preferential tax regimes are programmed to disappear with Tax Proposal 17, a change that will be fset partly by lower tax rates at the cantonal level. It should also be noted that, under certa conditions, temporary tax relief can be obtaed for busesses that serve the terests the local economy, for example by creatg jobs and makg vestments Switzerland. 2.4 Basic Rules on Loss Relief As a general rule, losses can be carried forward with the limit seven years, provided that they could not have been taken to account when calculatg the taxable prit for those years. Swiss tax law does not allow for losses to be carried back. 2.5 Limits on Deduction Interest Interest payments by companies are a busess expense deductible from the taxable come. Interest payments to related parties (shareholders or affiliates) must respect the fair market rate set out annually by the Federal Tax Admistration. In addition, th capitalisation limitations apply, with the relevant debt-to-equity ratio dependg on the class assets (eg, 100% cash, 85% receivables, etc). A deviation from these safe harbour rates may be accepted if the company can prove that the rates used are at arm s length. 2.6 Basic Rules on Consolidated Tax Groupg Separate entity taxation applies for come tax purposes. Group consolidations are not expected to be troduced the near future. While mergers lead to the consolidation the tax base the companies volved, such reorganisations are disregarded if their sole purpose is to set f the taxable prits one company with the losses the other. 2.7 Capital Gas Taxation Gas on the sale assets (capital gas) are generally subject to come tax at the federal, cantonal and communal levels. Dependg on the canton and/or the municipality, gas from the sale real estate can be exempt from the cantonal and/or communal come taxes, but will be subject to cantonal and/or communal real estate gas taxes. Companies holdg at least 10% the share capital another company or the rights to at least 10% the prits and reserves another company, for at least one year, are entitled to a participation relief on the capital gas realised on the sale such participation. Corporate come tax is calculated the usual way, and then reduced by the ratio net earngs on participations (gross earngs mus fancial and admistrative expenses) to the total net come. For example, if the net capital gas amount to 50% the company s total net come, corporate come tax will be reduced by 50%. replacement relief further allows a company to differ taxation prits from the sale fixed assets used connection with its busess, if such prits are revested with a reasonable time the replacement fixed busess assets located Switzerland. Consequently, the corporate come taxation unrealised gas can be differed. This also applies to real estate if the legal requirements above are fulfilled. Thus, if participations are sold by a company and the proceeds sale are revested other participations with a reasonable time (with one to three years), no corporate come taxes will be due on the unrealised gas. Corporate come taxes on capital gas resultg from the sale shares can be mimised further by usg a holdg company to acquire the shares. If this acquisition is fanced with debt, no push down on the target company is possible, as each entity is considered separately under Swiss law. In addition, a merger between the holdg company and the target company would be viewed as abusive. refore, the share price is generally kept as low as possible at acquisition (for example, by distributg dividends before the transaction or by reducg the capital the target company). 2.8 Other Taxes on Transactions Stamp duty is generally levied on shareholders contributions to a company and on the transfer securities, with certa transactions beg exempt (for example, certa restructurgs). Certa transactions require a notarial deed for which fees are payable (eg, corporation a corporation or limited liability company, transfer real estate). Land register charges are due on the sale, acquisition or transfer real estate located Switzerland. re is a 35% withholdg tax on come derived from movable capital assets (eg, terest on bonds and dividend payments). tax must be deducted by the debtor from 5
SWITZERLAND Law and Practice Contributed by Lenz & Staehel Author: Jean-Blaise Eckert the amount due to the recipient. In certa circumstances, a partial or total refund the tax withheld can be obtaed. 2.9 Other Notable Taxes A corporate capital tax based on a company s equity is levied at the cantonal and communal levels. Furthermore, excise taxes are levied, such as VAT on the supply and import goods or services. 3. Division Tax Base Between Corporations and Non-Corporate Busess 3.1 Closely Held Local Busesses Most closely held local busesses operate a corporate form. Only very small busesses generally operate a noncorporate form. 3.2 Corporate Rates and Individual Rates Individual pressionals are generally taxed dividually as self-employed physical persons on their come and wealth. taxation self-employed dividuals is equal to that salaried dividuals. However, they may also operate through an entity subject to corporate taxes, which case the entity pays a salary and/or dividend to the dividual, which is then taxed as an come respectively as the wealth the physical person. In such a case, the sum the taxes paid by the entity and the taxes paid by the physical person on the dividends received amounts to a total rate similar to what a self-employed dividual would pay. 3.3 Accumulation Earngs for Investment Purposes re are no rules to prevent closely held corporations from accumulatg earngs for vestment purposes, and particularly no dividend acceleration rules. Moreover, as a general prciple, private capital gas realised by an dividual are tax-exempt. However, under the direct partial liquidation rule, such gas may be recharacterised to taxable dividends if several conditions are met, namely at least 20% a participation is sold to a buyer the hands which the participation qualifies as a busess asset, the corporation distributes assets to the purchaser order to fance the purchase price, and the seller co-operated with the purchaser regardg said distribution. 3.4 Sales Shares Closely Held Corporations Income Tax Swiss come tax is levied on any distribution prits qualifyg as a dividend and paid to dividuals holdg shares closely held corporations. tax is levied on the gross amount received. Individuals holdg at least 10% the nomal value the share capital a company can obta a reduced tax base. In this respect, dividuals holdg shares as private assets are only taxable, dependg on the canton, on 40-70% the dividend received, or at a rate 35-60% the ordary rate. Individuals holdg shares as a busess asset are only taxable on 50% the dividend received. If the threshold 10% the shareholdg is not reached, dividuals are taxable on the gross dividend payment. tax treatment gas obtaed on the sale shares depends on whether the shares are held as a private asset or as a busess asset. sale shares held as a private asset is exempt from taxation, unless held as a busess asset or if the shareholder qualifies as a pressional trader. defition a pressional trader is not specified under Swiss law, so the Swiss tax authorities must exame each case dividually to determe whether someone qualifies as a pressional trader. followg criteria are generally relevant for the qualification: a shareholdg that lasted less than one year, the frequency transactions, the necessity obtag such gas to ensure someone s lifestyle, etc. Swiss law provides other exceptions to the general prcipal ga exemption. In particular, come tax may be levied on the sale shares by an dividual where: the shareholder sells at least 20% its shares to a company and the purchaser uses the assets the purchased company to fance the sales price; the shareholder sells at least 5% its shares to a company controlled by the same shareholder, so such transaction qualifies as a taxable transposition ; or a company purchases its own shares and the maximum percentages ownership (10% or 20% under certa conditions) provided by Swiss corporate law are not observed or the purchase is related to a capital reduction. Withholdg Tax Swiss WHT is levied on dividends paid by Swiss companies to shareholders at a rate 35% on gross come, whether paid to a Swiss-resident or a non-swiss resident. A Swiss resident may obta a full refund the tax withheld. For non-swiss residents, the WHT is considered as fal unless provided otherwise by a double tax treaty under which a full or partial refund may be granted. Capital gas resultg from the sale private shares by dividuals are also exempt from Swiss WHT. If the qualification an exempt capital ga is challenged by the Swiss tax authorities, Swiss WHT 35% may apply. A full or partial refund may be applicable for dividends. 6
Law and Practice SWITZERLAND Contributed by Lenz & Staehel Author: Jean-Blaise Eckert Transaction Stamp Duty A transaction stamp duty may be levied on the transfer certa Swiss and non-swiss securities maly shares or similar participation rights corporate entities if a Swiss security dealer is volved the transaction. This duty is calculated at 0.15% on Swiss securities and 0.3% on non- Swiss securities sold/purchased durg the year. 3.5 Sales Shares Publicly Traded Corporations Individuals that receive dividends from publicly traded corporations are treated identically to those that receive dividends from closely held corporations for Swiss come tax, withholdg tax and transaction stamp duty purposes. reduced tax rate based on a 10% ownership may be more difficult to reach from an come tax perspective. 4. Key Features Taxation Inbound Investments 4.1 Withholdg Taxes Withholdg Tax Swiss WHT may be levied on terests from bonds issued by a Swiss resident issuer, on dividends paid by a Swiss company to a foreign entity or vestor, and on terest paid to Swiss or foreign creditors on bonds or similar debt struments issued by Swiss resident issuers, such as loans. However, Switzerland does not levy any WHT on terests from private and commercial loans (cludg ter-company loans). A withholdg tax on terest is only levied for companies that qualify as tax resident for withholdg tax purposes. application the WHT only arises if the payment comes from a Swiss tax resident company; the residence the creditor is irrelevant. Furthermore, Switzerland does not levy WHT on royalties, whether paid to a resident or non-resident person. It should be noted that, if the royalties paid do not respect the arm s length prciple, they can be requalified as hidden dividends if paid to a shareholder or a party related to the shareholder. Swiss WHT rate 35% applies to such terests, dividends and other economically equivalent costs, or to hidden dividends. Without the application an come tax treaty, such tax is considered as fal and no reimbursement is allowed by the Swiss tax authorities. Tax at Source on Mortgage Secured Loans A tax at source may be levied for the terests paid on a loan secured by Swiss real estate. Individuals who are not domiciled or resident Switzerland for Swiss tax purposes are also subject to a specific withholdg tax levied by the canton where the property is located, which may vary from 13% to 21%. 4.2 Primary Tax Treaty Countries Foreign vestors tend to use double tax treaties concluded with Switzerland where full tax relief can be granted. Such double taxation treaty countries clude France, Germany, the UK and the USA for withholdg tax paid on terests. However, most the countries provide for a Swiss residual withholdg tax from 5% to 15%. With regards to dividends, double tax treaties are usually used with the EU and particular Luxembourg, where vestors can be granted full tax relief based on a 10% ownership. 4.3 Use Treaty Country Entities by Non-Treaty Country Residents In 1962, the Swiss Federal Council troduced a Decree imposg measures agast the abusive use double tax treaties concluded by Switzerland ( ACF 1962 ). Among other matters, the Decree aims to restrict the right Swiss resident companies to benefit from double tax treaties. It was then troduced as an Ordance. A case abusive claim is recognised if most the direct or direct shareholders a Swiss company do not benefit from the double tax treaty, provided that the Swiss company does not proceed to appropriate dividend distributions. A case abuse is also recognised if an essential part come benefitg from a double tax treaty is used to directly or directly compensate counterparts that do not themselves benefit from the double tax treaty. compensation can, for example, relate to terests, royalties, or any other type expenses paid to such counterparts. Accordg to the Swiss tax authorities, a foreign entity claimg a refund the Swiss WHT must fulfil all the mandatory requirements. In particular, the tax authorities review if the company requestg a refund is the real beneficiary the come and is entitled to such refund. tax admistration also has an economic approach to the facts and reviews the structure to determe if it has been arranged with the sole purpose obtag a full or partial refund WHT. In such cases, the refund the withholdg tax withheld may be denied by the Swiss tax authorities. 4.4 Transfer Pricg Issues Swiss domestic law does not provide any specific transfer pricg rules or regulations. As such, Switzerland applies the OECD guideles to transfer pricg issues. 4.5 Related Party Limited Risks Distribution Arrangements re are no specific rules with respect to the use related party limited risk distribution arrangements Swiss tax law. However, the Swiss tax authorities may review the struc- 7
SWITZERLAND Law and Practice Contributed by Lenz & Staehel Author: Jean-Blaise Eckert ture with regards to safe harbour rules and the arm s length prciple to challenge an abusive use such a related party. 4.6 Variation from OECD Standards As mentioned previously, Switzerland applies the OECD standards for transfer pricg issues. 5. Key Features Taxation Non- Local Corporations 5.1 Taxation Non-Local Corporation Versus Local Subsidiaries Local branches and subsidiaries non-local corporations are similarly taxed Switzerland for corporate come tax purposes. For withholdg tax purposes, however, subsidiaries are subject to withholdg obligations, while branches are not. 5.2 Capital Gas Non-Residents Non-residents capital gas on the sale stock local corporations are not subject to tax Switzerland, unless it is a ga derived from the sale a Swiss real estate company. If a double taxation treaty correspondg to the MC OCDE is applicable the case at hand, such real estate ga would typically only be taxable Switzerland. 5.3 Change Control Provisions Change control a non-local corporation may trigger taxes/duty charges exclusively for real estate companies. specifics will depend on the Canton s legislation. 5.4 Determg the Income Foreign-Owned Local Affiliates re are no specific formulas recommended by law or the Admistration s published practice. Nevertheless, all transactions with a Swiss related entity must be carried out at arm s length. 5.5 Deductions for Payments by Local Affiliates Deductions are allowed Switzerland, cludg expenses paid to related parties, as long as such expenses are commercially justified. Management and admistrative services provided by a non-local affiliate to a Swiss company are ten remunerated based on a cost-plus method practice. Under this method, the costs curred by the supplier services to an affiliate enterprise serve as the basis to determe the come to be allocated to said service provider. An appropriate mark-up typically oscillatg between 5% and 15% is then added to these costs, resultg an appropriate prit light the functions performed and the market conditions. 5.6 Contrats on Related Party Borrowg Borrowgs from a non-local affiliate to a Swiss foreignowned affiliate must be remunerated by terests paid at an arm s length rate, published yearly by the Federal Tax Admistration. Such terests are typically not subject to Swiss withholdg tax (35%), unless they are characterised as bonds. 6. Key Features Taxation Foreign Income Local Corporations 6.1 Foreign Income Local Corporations A company with its seat or effective place management Switzerland is subject to tax Switzerland on an unlimited basis. As such, it is subject to tax with respect to its worldwide prits (cludg foreign comes), except for come related to enterprises carried abroad, permanent establishments and real estate located abroad. In certa stances, Swiss companies whose busess is predomantly oriented abroad may qualify for the auxiliary tax regime and thus benefit from a preferential tax rate on come generated abroad. 6.2 Non-Deductible Local Expenses Expenses proportionally attributable to foreign come that is not subject to Swiss tax are not deductible Switzerland. However, special rules apply with respect to the debt loss carry over local corporations foreign permanent establishments. 6.3 Taxation on Dividends from Foreign Subsidiaries participation reduction regime applies at a federal and cantonal/communal level, so that the effective tax rate applicable to the dividends received is proportionately reduced as per the ratio the net dividend come over the total net taxable come, provided that the Swiss company holds at least 10% the participation or participation rights with a market value at least CHF1 million. As a result, such dividend come is usually virtually tax exempt. participation exemption applies irrespective whether the dividends are paid by a resident or a non-resident company. As today, holdg companies may take advantage a special status at the cantonal/communal level and are generally exempt from corporate come tax. In the framework Tax Proposal 17, however, which is likely to enter to force on1 January 2019, the holdg tax regime will be abolished. 8
Law and Practice SWITZERLAND Contributed by Lenz & Staehel Author: Jean-Blaise Eckert 6.4 Use Tangibles Switzerland has not yet troduced specific provisions with regard to the taxation tangibles; the derivg come is therefore subject to prit taxes. However, under the mixed company tax status, prits derived by non-swiss source come might be taxed at a substantially reduced rate for cantonal/communal tax purposes. In the framework Tax Proposal 17, a patent box regime should be troduced for cantonal/communal tax purposes that would encompass qualifyg patent come, provided the R&D spend relation to the registered patent occurred Switzerland. patent box will not clude patented stware, and will be compliant with the OECD standards. maximum level permissible tax relief for come related to the patent box will be 90%. It should also be noted that, under Tax Proposal 17, an optional measure could be taken by each canton dividually to allow for the troduction an creased tax deduction (up to 150%) for qualifyg R&D expenses curred Switzerland. 6.5 Taxation Income Non-Local Subsidiaries Under CFC-Type Rules Switzerland does not operate a CFC regime. However, accordg to the case law the Federal Supreme Court, prits companies formally domiciled abroad with little or no local substance that are effectively managed Switzerland or have a permanent establishment Switzerland may be subject to Swiss come tax. For a company to be considered as beg effectively managed Switzerland, the local tax authorities (cludg tax admistrations) follow a case-by-case approach aimed at determg where the location the economic centre the company s existence by weighg the different relevant factual elements. key element used to determe the location the effective management is the place where the management is exercised, ie, the day-to-day actions required to realise the statutory purpose the company. place where the fundamental decisions are taken or the place where the simple admistrative work (accountg, correspondence) is done can only be taken to account as secondary elements. Other secondary elements used to determe the location the effective management are the residency the managg bodies, the place where the operational contracts are executed, and the place storage the documents and archives. followg elements must be avoided order to limit any requalification the non-local seat as a pure formal seat (and, as the case may be, recognition a place effective management Switzerland): domicile and location, frastructure/employees, pressional qualification employees, contracts, bankg operations, bookkeepg, board directors, and annual shareholders meetg. Under Swiss tax law, a foreign company is also subject to limited tax liability when it has a permanent establishment Switzerland. Only the come derived from the permanent establishment is subject to tax Switzerland. To constitute a permanent establishment, there must be (i) a place busess, (ii) which must be fixed, and (iii) from which busess must be carried out. terpretation these conditions is wide, and it is considered that such a place busess can be located the premises another company. 6.6 Taxation on Ga on the Sale Shares Non- Local Affiliates If a corporation realises a capital ga on the sale a qualifyg participation, it is entitled to a participation reduction. To qualify for relief on capital gas, a Swiss company must make a prit on the sale a participation that represents at least 10% the share capital another company which it has held for at least one year. Companies with qualifyg capital gas may reduce their corporate come tax by reference to the ratio between net earngs on such participations and total net prit. Losses curred as a result the sale qualifyg participations rema tax-deductible. A capital ga is defed as the difference between the proceeds from the sale a qualifyg participation and the acquisition cost the vestment. Hence, any amount previously tax-deductible depreciation or provision on the participation is not taken to consideration to calculate the amount ga that can benefit from the relief. In addition, revaluation gas from participations do not qualify. Favourable tax treatment is also available for qualifyg participations transferred to group companies abroad; the group holdg or sub holdg company must be corporated Switzerland. 7. Anti-Avoidance 7.1 Overarchg Anti-Avoidance Provisions In Switzerland, GAARs are not contaed a specific act. Through the years, the Federal Supreme Court has developed a general prciple abuse law or tax avoidance, applicable to all Swiss taxes. In accordance with this prciple, which is applied by all Swiss courts and tax authorities, tax authorities have the right to tax the taxpayer s legal structure based on its economic substance, certa situations. In addition, Swiss tax authorities generally apply the arm s length prciple and follow the OECD transfer pricg guideles. Swiss regulation also contas specific anti-avoidance provisions. 9
SWITZERLAND Law and Practice Contributed by Lenz & Staehel Author: Jean-Blaise Eckert Regardg the specific issue treaty shoppg, on June 7, 2017 Switzerland signed the OECD s Multilateral Instrument ( MLI ), which troduced a prciple purpose test, accordg to which a benefit under a tax treaty shall not be granted if obtag that benefit was one the prcipal purposes an arrangement or transaction. 8. Other 8.1 Regular Route Audit Cycle Swiss law does not outle the specifics the tax audit process. After the taxpayer files the tax return, the tax authorities may request further formation/documentation prior to issug the tax assessment. tax authorities are obligated and entitled to gather all necessary formation to assess a taxpayer on a true and complete base. Switzerland has a well-established and efficient practice for the resolution tax disputes. When confronted with an unlawful tax assessment, the taxpayer is generally not obliged to immediately challenge said assessment court but may rather turn to the tax authority that issued the tax assessment decision beg challenged, to force it to make a new decision. Such a formal complat is a quick and efficient procedure that allows numerous questions to be resolved with little cost, the majority these beg technical questions. formal complat procedure thus elimates the need for court proceedgs, and generally takes a few months. However, this way appeal fers limited solutions for complicated issues. In such cases, tax authorities usually prefer to wait for a bdg judgment made by a higher dependent body (ie, a tribunal). It is very common for taxpayers to exercise their right to challenge the tax assessment decision a tax authority. Tax authorities then issue a decision on the formal complat. 9. BEPS 9.1 Recommended Changes So far, the Swiss Government and the Swiss Parliament have enacted federal laws to implement CbCR, which will come to effect on January 1, 2018. Furthermore, Switzerland signed the MLI on June 7, 2017, but no date has yet been agreed for it to enter to force Switzerland. Switzerland made a number reservations to the MLI, thereby mostly limitg itself to provisions that relate to a mimum standard. Currently, the Swiss Government has not dicated that it plans to implement any other recommended changes. 9.2 Government Attitude position the Swiss Government is to wait and see. Swiss Government and Swiss lawmakers readily participate any general anti-avoidance mechanisms, and also agree to challenge abusive structures that give rise to double non-taxation, but have yet to take additional steps at the moment. Indeed, great care is taken to keep Switzerland an attractive place for vestments. 9.3 Prile International Tax So far, the focus public terest has been on the exchange formation and on measures set up to avoid bankg secrecy beg used to save tax unduly. Other BEPS recommendations have clearly not been the focus public terest. 9.4 Competitive Tax Policy Objective Swiss authorities are likely to challenge abusive double nontaxation transactions or structures. However, Swiss tax law is likely to prevail, with higher requirements terms substance. A good example this is the requirement and strict application the Nexus approach the new draft law for the complete reform corporate taxation. 9.5 Key Features Competitive Tax System To rema le with ternational standards, the Swiss Government had already announced, before BEPS, that it would review the tax regimes prcipal companies, Swiss fance branches, and holdg and auxiliary companies. Such abolition will likely be fset partly by highly reduced corporate come tax rates, which will apply to each and any company, regardless its activity. This will be supplemented with, at least, a reduced taxation patent box revenue. 9.6 Proposals for Dealg with Hybrid Instruments As mentioned above, the Swiss Government is likely to favour general measures that will challenge abusive structures. Concurrently, it is unlikely to implement any specific measures to deal with hybrid struments. Thus, as an example, the Swiss Government made a reservation to Articles 3 and 4 the MLI. 9.7 Territorial Tax Regime Switzerland has a territorial tax regime, and the Government has applied th capitalisation rules for many years. Those rules apply to each and every company, regardless its activity, and allow for a maximum leverage dependg on the type assets the Swiss company. In addition, safe harbour rates are issued every year by the Federal Tax Admistration. Those rules are unlikely to be amended. 9.8 CFC Proposals CFC rules are technically difficult to implement. implementation such rules is likely to lead to many double taxation situations. An application CFC rules based on a low rate rule will 10
Law and Practice SWITZERLAND Contributed by Lenz & Staehel Author: Jean-Blaise Eckert obviously depend on the defition a low rate. An application to situations with a 0% rate would be the only scenario not likely to lead to legal uncertaty. 9.9 Anti-Avoidance Rules With a comparatively high withholdg tax on dividends (35%, subject to reduction or elimation on the basis DTC), the benefit a DTC to exit Switzerland is important. Thus, DTC limitation benefits and anti-avoidance rules are deed likely to have an impact on bound vestors. 9.10 Transfer Pricg Changes Traditionally, Switzerland has not had any specific transfer pricg laws, and will not have any the foreseeable future. Transfer pricg decisions rendered by tax authorities or Swiss courts have always been based on a very general application the arm s length prciple, ten fluenced by OECD commentaries. This is where BEPS may have an impact on the current situation. taxation prits from tellectual property is part a vast reform corporate taxes set to enter to force 2019 or 2020. This will be limited to revenue based on patents with a strict application the Nexus approach. 9.11 Transparency and Country by Country Reportg country-by-country reportg is certaly a good tool that should help tax authorities to correctly grasp a given situation. On the other hand, the concern is that it will be used as a mere tool and not as ultimate evidence. It is likely to result a massive crease requests for formation. establishment a level playg field among a maximum number jurisdictions is the next challenge. 9.12 BEPS Process BEPS process, the size the documents produced and the quality the reports are impressive, but the effective implementation those measures remas to be seen, especially Asia. non-participation the United States is an issue itself. Thus, currently, the BEPS process proves itself to be very effective the European Union, with some clearly dissentg opions among the jurisdictions, even with this Union. Lenz & Staehel Route de Chêne 30 Case postale 6165 1211 Genève 6 Tel: +41 58 450 70 00 Fax: +41 58 450 70 01 Email: jean-blaise.eckert@lenzstaehel.com Web: www.lenzstaehel.com 11