TAX UPDATE Geneva, December 16, 1
AGENDA 1. Swiss and international Corporate tax policy update 2. Base Erosion and Profit Shifting 3. Swiss Corporate Tax Reform III 4. Automatic exchange of information 5. Individual tax overview 6. Question & Answers 2 Lausanne, le 22 janvier
01 SWISS AND INTERNATIONAL CORPORATE TAX POLICY - UPDATE 3 Lausanne, le 22 janvier
SWISS AND INTERNATIONAL CORPORATE TAX POLICY INTERNATIONAL TAX PERSPECTIVES EU Tax Dialogue > Agreement signed in October 2014: - Switzerland will abolish the privileged tax regimes which distort trade competition - EU give up reprisals against Switzerland OECD actions SWISS CORPORATE TAX REFORM III Abolishment of privileged corporate tax rulings: > Holding Company (cantonal privilege) > Auxiliary or Mixed Company (cantonal privilege) > Domiciliary Company (cantonal privilege) > Principal Company > Finance Branch > The Forum on Harmful Tax Practices issued a list of criteria to determine when a tax regime is potentially harmful Reduction of cantonal corporate income tax rates where necessary to maintain competitiveness > The Base Erosion and Profit Shifting (BEPS) actions plan was issued in July 2013 and reports finalized in October Introduction of new tax regimes which comply with international standards Additional tax measures aiming to strengthen Switzerland attractiveness 4 Date
02 BASE EROSION AND PROFIT SHIFTING 5 April 2013
BEPS ACTION PLAN 1. Tax profits where the effective business activity takes place 2. Put an end in aggressive tax planning 3. Avoid any international double non-taxation 6 Lausanne, le 22 janvier
BEPS FINAL REPORTS Action 1 Action 2 Action 3 Action 4 Action 5 Action 6 Action 7 Actions 8,9,10 Action 11 Action 12 Action 13 Action 14 Action 15 BEPS ACTION PLAN Address the tax challenges of the digital economy Neutralize the effects of hybrid mismatch arrangements Strengthen CFC rules Limit base erosion via interest deductions and other financial payments Counter harmful tax practices more effectively, taking into account transparency and substance Prevent treaty abuse Prevent the artificial avoidance of PE status Assure that transfer pricing outcomes are in line with value creation: Action 8: Intangibles Action 9: Risks and capital Action 10: Other high risk transactions Establish methodologies to collect and analyze data on BEPS and the actions to address it Require taxpayers to disclose their aggressive tax planning arrangements Re-examine transfer pricing documentation Make dispute resolution mechanisms more effective Develop a multilateral instrument Freiburg, 29. Januar 7
BEPS POTENTIAL IMPACTS FOR SWITZERLAND BEPS RECOMMENDATIONS FROM A SWISS VIEWPOINT COMMENTS Preventing harmful tax practices Taxation of Intangible Property as per Nexus approach Transfer pricing: new TP rules & new TP documentation Spontaneous exchange of information on advance tax rulings & country-by-country report Dispute resolution mechanisms Anti-abuse provision in double taxation agreements Controlled foreign company rules (CFC rules) Prevent artificial avoidance of PE status Abolition of existing tax rulings CTR III proposes a Patent Box regime in line with the OECD standards New TP framework should be translated into national framework Profits are aligned with the value creation New law likely to become effective in 2017 & 1 st exchange as from January 2018 International treaty protection (specialty & confidentiality) Mutual agreement procedure guaranteed by DTT Unilateral anti-abuse instrument: 1962 Decree Large DTT network with anti-abuse rules Switzerland does not apply CFC rules Abolition of the principal company ruling New definition of the PE? Monitor potential tax impacts (e.g. exit taxation/hidden reserves, LCF, PE issue, lower CIT rates) Understand impact, ensure R&D is conducted in Switzerland to be eligible for the patent box incentives Examine if TP documentation needs to be aligned (i.e. functional analysis, master file, local file, CbC report) Review cross-border tax rulings Review business performed in each jurisdiction by large MNEs (annual consolidated revenue higher than 750 million) n/a Multilateral instrument into force in 2017/2018? Tax opportunity when subsidiaries are located in low-taxed jurisdictions Commissionaire structure => PE issue? LRD structure => TP issue? E-commerce => PE issue? VAT issue? 8
03 SWISS CORPORATE TAX REFORM III 9 Lausanne, le 22 janvier
CORPORATE TAX REFORM III (CTR III) Proposal to the Swiss Parliament (June ) Measures corporate tax reform III Abolition of the cantonal tax regimes Transitory measures Introduction of patent box at cantonal level Step-up mechanism & disclosure of hidden reserves Possibility for cantons to introduce an additional deduction for R&D expenditures Lowering of equity tax Abolition of the issuance stamp study Harmonization of the taxation of dividends for individuals Notional interest deduction Introduction of a capital gain taxation on securities Amendment of the participation exemption Amendment to the offset of loss carry forward Reduction of the cantonal corporate tax rates Freiburg, 29. Januar 10
EXPECTED TIMELINE UNTIL IMPLEMENTATION End of January End of consultation process December Approval of the CTR III by the Swiss Council of States Spring / Summer 2016 Debates at the level of the National Council 2016/ 2017 Possible referendum Implementation of the new legislations by the cantons 2016 2017 2018 2019 September 2014 Publication of the consultation report June Draft legislation + Message of the Federal Council submitted to the Parliament 1 st January 2017: earliest date for CTR III becoming legally effective 2-year transitional period for amendment of Cantonal legislation 11 Date
SUMMARY OF EFFECTIVE TAX RATE PER CANTONS Neuchâtel I = 17.01% E = 0.5% CTR = 15.61% Vaud I = 22.79% E = 0.071% CTR = 13.79% Jura I = 20.76% E = 0.377% CTR = 19.7% Bâle-Ville I = 14.89% E = 0.532% CTR = N/A Lucerne I = 12.31% E = 0.185% CTR = N/A Zurich I = 21.15% E = 0.174% CTR = N/A Zoug I = 14.57% E = 0.075% CTR = 12% Genève I = 24.16% E = 0.445% CTR = 13% Fribourg I = 19.86% E = 0.31% CTR = 15% Valais I = 21.45% E = 0.505% CTR= 14-16% Berne I = 21.62% E = 0.146% CTR = 17.96% / 16.37% Date I = income tax E = equity tax CTR = projected new tax rates for income tax N/A = not yet available 12
STATUS OF THE CTR III IN THE CANTONS OF GENEVA AND VAUD Canton of Geneva no political decision as of today wait until the final version of the CTR III Canton of Vaud in September, the Vaud legislative assembly adopted the cantonal legislation proposal referendum => in Spring 2016? 13 Date
04 AUTOMATIC EXCHANGE OF INFORMATION 14 Genève, le 22 janvier
EXCHANGE OF INFORMATION IN TAX MATTERS Exchange of information on request Spontaneous exchange of information Automatic exchange of information 15
AUTOMATIC EXCHANGE OF INFORMATION (AEOI) 11/2014 14.1.15 5.06 16.09 18.11 25.11 2016 2017 2018 Consultation Parliamentary debates Data collection Confidentiality, reciprocity and specialty are key regarding exchange of information Switzerland has also signed tax information exchange agreements (TIEA) which govern the exchange of information upon request 16
WHAT DOES IT MEAN? Reportable Persons Individuals Corporations Trusts & partnerships Reporting Financial Institutions Depository institutions Custodial institutions Investment entities Specified Insurance companies Reportable Financial Accounts Depository accounts Custodial accounts Equity & Debt interests Cash value Insurance contracts Annuity contracts Due Diligence procedures 17 Titre de la présentation
05 INDIVIDUAL TAX OVERVIEW 18 Lausanne, le 22 janvier
LUMP-SUM TAXATION REGIME NEW LEGISLATIONS New federal tax law will enter into force as of January 1 st, 2016 Taxable basis: CHF 400 000 or 7 times the housing expenses of the taxpayer (new article 14 FDTL) Cantonal tax law must set a minimum threshold for the taxable basis (new art. 6 FTHL came into force on January 1 st, 2014 transitional period until January 1 st, 2016 to adapt the cantonal law) Geneva: CHF 400 000 (including increase of 15% of the taxable basis to consider the wealth tax) Vaud: CHF 415 000 (including increase of 10% of the taxable basis to consider the wealth tax) Transitional period of 5 years for the existing rulings FDTL: Federal Direct Tax Law FTHL: Federal Tax Harmonization Law 19 Lausanne, le 22 janvier
INITIATIVE OF A SWISS FEDERAL ESTATE AND GIFT TAX Swiss voters rejected in June the federal initiave for a Swiss federal estate and gift tax the competence to withhold the inheritance and gift tax remains at the level of the 26 Swiss cantons 1 Including the gifts made from January 1 st, 2012 - The paid gift tax is credited to the inheritance tax. 20 Lausanne, le 22 janvier
TAX DEDUCTION ON TRAVEL EXPENSES Limitation of the deductibility of the travel expenses for employed individuals (i.e. necessary travel between home and workplace) resulting from the FABI initiative At Federal level: Max. deduction of CHF 3 000/year In force from January1 st 2016 At Cantonal/communal level: Amendment of the Tax Harmonization Act allowing cantons to apply a cap on deductible travel expenses. The cap will be determined on a Canton-by-Canton basis* Geneva: pending law project providing a cap of CHF 500 Vaud: no cap In force from January1 st 2016 *Still debated in some cantons and already subject to referendum in some of them 21 Lausanne, le 22 janvier
PRIVATE USE OF COMPANY CARS Tax treatment until December 31, Private use of the car = fringe benefit (corresponding to 9.6% of the acquisition price of the car, excluding VAT) to be reported in the salary certificate (code 2.2) + tick box F in case of use of the car for the travel to work Tax treatment from January 1 st, 2016 (legislative changes subsequent to the FABI initiative) Limitation of the deductibility of the travel expenses (applicable only for the use of the car between home and the place of work) Two options available (proposed by the Swiss Tax Conference): Mention of the fringe benefit in the salary certificate* (for example 0.70 per kilometer) Mention of the fringe benefit directly in the annual income tax return as accessory income** For both options the private individual would be entitled to apply the CHF 3 000 annual deduction * Social security and VAT applicable ** No social security or VAT 22 Lausanne, le 22 janvier
BASIC TRAINING COSTS AND FURTHER EDUCATION COSTS Tax treatment until December 31, Basic training not tax deductible Further education (in relation with the original profession) tax deductible Tax treatment from January 1 st, 2016 Both basic training and further education costs would be tax deductible if: For professionnal purposes Not exceeding CHF 12 000 per calendar year (at the federal level)* For individuals under 20 years, a certificate of secondary education level is necessary If the employer supports the costs there will be no charge in deduction of the employe s salary * Cantons are free to set another limit Geneva / Vaud: CHF 12 000 per calendar year 23 Lausanne, le 22 janvier
QUESTIONS AND ANSWERS 24 Lausanne, le 22 janvier
THANK YOU FOR YOU ATTENTION! CONTACT Mazars Tax department Nathalie Pellanda Gaud, Senior Manager Tel. +41 22 708 01 64 Email: nathalie.pellanda@mazars.ch Marie-Hélène Revaz, Executive Director Tel. +41 22 708 01 60 Email: marie-helene.revaz@mazars.ch FRIBOURG Rue Saint-Pierre 3 1701 Fribourg Tel. +41 26 351 21 30 Fax +41 26 351 21 31 GENÈVE Chemin de Blandonnet 2 1214 Vernier Genève Tel. +41 22 708 10 80 Fax +41 22 708 10 88 LAUSANNE Avenue de Gratta-Paille 2 1018 Lausanne Tel. +41 21 310 49 49 Fax +41 21 310 49 99 SION Rue de la Porte-neuve 33 1950 Sion Tel. +41 27 329 63 50 ZURICH Mühlebachstrasse 20 8008 Zürich Tel. +41 44 384 84 44 Fax +41 44 384 84 45 info@mazars.ch 25