INTERNATIONAL TAX CONFERENCE 2018: SWISS TAX PROPOSAL 17 RAINER HAUSMANN, BDO ZURICH 25 MAY 2018
TAX PROPOSAL 17 Developments concerning tax proposal 17 - OVERVIEW Abolishment existing tax regimes Patentbox (mandatory at cantonal level) R&D super deduction (optional at cantonal level) Notional interest deduction (mandatory at federal and optional at cantonal level) CTR III Dispatch by Federal Council 12 February 2017 21 March 2018 Cantonal level: holding, domicile and mixed companies Federal level: principal companies and Swiss Finance Branch OECD modified 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) Software not qualifying, only if embedded in patented products Concessions for SMEs not included anymore Calculation according to the top-down approach (residual method) including deduction of trademark costs and 6% of product related costs (if information available) Subject to the overall tax relief of maximum 70% (in combination with other measures) Additional R&D deduction may not exceed 50% of qualifying personnel expenses In addition flat surcharge of 35% on qualifying personnel expenses for other R&D expenses (capped at total expenses) Deductions on 80% of the invoiced amount of domestic contract R&D Subject to the overall tax relief of maximum 70% (in combination with other measures) X Not included 2
TAX PROPOSAL 17 Developments concerning tax proposal 17 - OVERVIEW Step-up / Transitional measures Current System New System Restriction of overall tax relief CTR III Dispatch by Federal Council 12 February 2017 21 March 2018 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 70% (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% 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) Cantons may introduce the two-rate system before Tax Proposal 17 as such has entered into force Amortizations of step-up are subject to the overall tax relief of maximum 70% Additional R&D deduction may not exceed 50% of qualifying personnel expenses In addition flat surcharge of 35% on qualifying personnel expenses for other R&D expenses (capped at total expenses) Deductions on 80% of the invoiced amount of domestic contract R&D Subject to the overall tax relief of maximum 70% (in combination with other measures) Target relief of capital tax (optional at cantonal level) On net equity related to participations, intangible assets and intercompany loans Relief of capital tax on qualified participations and intangible assets (intercompany loans not included) 3
TAX PROPOSAL 17 Developments concerning tax proposal 17 - OVERVIEW CTR III Dispatch by Federal Council 12 February 2017 21 March 2018 Amendment of partial dividend taxation (mandatory 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 Partial taxation of dividends should be 70% at federal level At cantonal level the partial taxation of dividends should be at least 70% (i.e. maximum 30% exemption) Stake of cantons in the direct federal tax 21.2% (counter-financing measure) 21.2% (clause to take communes into account in connection with the increase in the cantons share of federal direct tax) Family Allowances Not included The minimum amount for child and education allowances is to be increased by CHF 30 Child allowances min. CHF 230 Education allowances min. CHF 280 Transposition Sale of participations to self-controlled company (50%) is a taxable event, also if less than 5% are sold Flat-rate tax credits Legal basis to include Swiss permanent establishments of foreign companies to the qualification for flat-rate tax credits 4
TAX PROPOSAL 17 Envisaged effective corporate tax rates at cantonal level (1/2) BS: 13% BL: 14% (2024) JU: 15-16% BE: 16.4% (2022) SO: 12.9% LU: 12.3% SH: 12-12.5% ZH: 18.2% ZG: ~12% TG: 13.4%c AR: 13% AI: 13-15% NE: 15.6% SG: <15% SZ: 12-13% VD: 13.8% UR: 15% GE: ~13.5% FR: 13.7% OW: 12.7% NW: 12.7% TI: 17.5%c 5
TAX PROPOSAL 17 Envisaged corporate tax rates (2/2) Envisaged tax rates Comments AG not yet determined reduction expected AR 13 % based on current law, AI 13-15 % based on current law, BL 14 % reduction expected (2024) BS 13 % reduction expected BE 16.4% reduction expected (2022) FR 13.7 % reduction expected GE ~ 13.5 % reduction expected GL not yet determined GR not yet determined reduction expected JU 15-16% reduction expected LU 12.3 % based on current law, NE 15.6 % reduction expected NW OW Envisaged tax rates Comments 12.7 % based on current law, 12.7 % based on current law, SH 12-12.5 % reduction expected SZ 12-13 % based on current law, SO 12.9% reduction expected SG < 15% reduction expected TI 17.5% reduction expected TG 13.4% reduction expected UR 15% based on current law, VD 13.8 % officially confirmed VS 15.6% reduction expected (2021) ZG ~ 12 % reduction expected ZH 18.2% reduction expected 6
CURRENT CAPITAL TAX RATES Including cantonal multipliers Ordinary taxed Holding companies Ordinary taxed Holding companies AG 0.211% 0.017% AR 0.072% 0.015% AI 0.050% 0.005% BL 0.380% 0.021% BS 0.525% 0.050% BE 0.144% 0.042% FR 0.307% 0.033% GE 0.401% 0.067% GL 0.253% 0.005% GR 0.496% 0.005% JU 0.377% 0.031% LU 0.190% 0.001% NE 0.500% 0.001% NW 0.010% 0.010% OW 0.200% 0.001% SH 0.210% 0.005% SZ 0.169% 0.011% SO 0.178% 0.032% SG 0.067% 0.003% TI 0.293% 0.029% TG 0.084% 0.003% UR 0.001% 0.001% VD 0.070% 0.175% VS 0.500% 0.175% ZG 0.075% 0.003% ZH 0.172% 0.034% 7
TAX PROPOSAL 17 POSSIBLE TIMING On 21 March 2018 the Swiss Federal Council published the revised bill together with the dispatch on Tax Proposal 17 for the discussion in the Parliament. The proposal's aim is to secure the long-term attractiveness of Switzerland as a business location and to re-establish international acceptance of the Swiss tax system. Interests of cities and communes are taken into account Leaner package with reduced benefits (no notional interest deduction;amendment of partial qualified dividend taxation) Aim of reduction of tax revenue shortfalls and introduction of a social component If no referendum is taken Tax Proposal 17 might enter into force already in 2019, whereby Cantons must implement the new law within 2 years. 2017 2018 2019 2020 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 Communication on benchmark figures re TP 17 Start of consultation period of min. 3 months Mandate to Federal Council to prepare a dispatch Approval of dispatch prepared by the Federal Council Parliamentary discussions during either Fall or Winter sessions 2018 & approval of TP 17 Expiration of referendum period Implementation on the cantonal level as per beginning of 2020/2021 Ongoing discussions with the EU and OECD (Organization for Economic Co-operation and Development) about the future legislative procedure, exspecially about the delay of the Swiss Tax Reform, expected. 8
KEY TAKE AWAYS Tax Proposal 17 well underway Current tax law still in force New law implemented by Cantons in 2021/2022 Open dialogue with OECD/EU Swiss timing should still be ok Cantonal corporate income tax reduction is still key Cantons must already now work on Cantonal tax law change and must disclose their plans in parallel of process of Tax Proposal 17 Switzerland remains an attractive business location with its highly skilled workforce, excellent infrastructure, and the overall attractive tax environment. 9
RAINER HAUSMANN Head Tax and Legal Region Zurich-Eastern Switzerland Attorney-at-Law, Certified Tax Expert rainer.hausmann@bdo.ch Direct: +41 (0)4 444 58 68 Kerstin Heidrich Head of International Tax lic. rer. pol., Certifited Tax Expert kerstin.heidrich@bdo.ch Direct: +41 (0)44 444 58 32 Mobile: +41 (0)79 597 77 90