{"id":4479,"date":"2019-06-07T14:33:18","date_gmt":"2019-06-07T12:33:18","guid":{"rendered":"https:\/\/www.lcta.ch\/portfolio-articoli\/switzerland-approves-tax-reform_ey\/"},"modified":"2019-08-26T10:23:13","modified_gmt":"2019-08-26T08:23:13","slug":"switzerland-approves-tax-reform_ey","status":"publish","type":"portfolio","link":"https:\/\/www.lcta.ch\/en\/portfolio-articoli\/switzerland-approves-tax-reform_ey\/","title":{"rendered":"SWITZERLAND APPROVES TAX REFORM"},"content":{"rendered":"<div id='full_slider_1'  class='avia-fullwidth-slider main_color avia-shadow   avia-builder-el-0  el_before_av_two_third  avia-builder-el-first   container_wrap fullsize'  ><div  class='avia-slideshow av-1nayjuw-790c2ecdef200df18f9d443aefc93b29 avia-slideshow-featured av_slideshow_full avia-slide-slider av-slideshow-ui av-control-default av-slideshow-manual av-loop-once av-loop-manual-endless av-default-height-applied   avia-slideshow-1' 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class=\"slideshow_align_caption\"><h2 class='avia-caption-title '  itemprop=\"name\" >NEWS<\/h2><\/div><\/div><\/div><\/div><\/div><img decoding=\"async\" fetchpriority=\"high\" class=\"wp-image-3729 avia-img-lazy-loading-not-3729\"  src=\"https:\/\/www.lcta.ch\/site\/wp-content\/uploads\/2016\/09\/sld-home.jpg\" width=\"1500\" height=\"430\" title='sld-home' alt=''  itemprop=\"thumbnailUrl\" srcset=\"https:\/\/www.lcta.ch\/site\/wp-content\/uploads\/2016\/09\/sld-home.jpg 1500w, https:\/\/www.lcta.ch\/site\/wp-content\/uploads\/2016\/09\/sld-home-300x86.jpg 300w, https:\/\/www.lcta.ch\/site\/wp-content\/uploads\/2016\/09\/sld-home-768x220.jpg 768w, https:\/\/www.lcta.ch\/site\/wp-content\/uploads\/2016\/09\/sld-home-1030x295.jpg 1030w, https:\/\/www.lcta.ch\/site\/wp-content\/uploads\/2016\/09\/sld-home-705x202.jpg 705w, https:\/\/www.lcta.ch\/site\/wp-content\/uploads\/2016\/09\/sld-home-450x129.jpg 450w\" sizes=\"(max-width: 1500px) 100vw, 1500px\" \/><\/div><\/li><\/ul><\/div><\/div><div id='after_full_slider_1'  class='main_color av_default_container_wrap container_wrap fullsize'  ><div class='container av-section-cont-open' ><div class='template-page content  av-content-full alpha units'><div class='post-entry post-entry-type-page post-entry-4479'><div class='entry-content-wrapper clearfix'>\n\n<style type=\"text\/css\" data-created_by=\"avia_inline_auto\" id=\"style-css-av-1ie1lg8-c9a357716eed360fb21359d9dde6225e\">\n#top .flex_column.av-1ie1lg8-c9a357716eed360fb21359d9dde6225e{\nmargin-top:0px;\nmargin-bottom:0px;\n}\n.flex_column.av-1ie1lg8-c9a357716eed360fb21359d9dde6225e{\nborder-radius:0px 0px 0px 0px;\npadding:30 px 30 px 30 px 30 px;\n}\n.responsive #top #wrap_all .flex_column.av-1ie1lg8-c9a357716eed360fb21359d9dde6225e{\nmargin-top:0px;\nmargin-bottom:0px;\n}\n<\/style>\n<div  class='flex_column av-1ie1lg8-c9a357716eed360fb21359d9dde6225e av_two_third  avia-builder-el-1  el_after_av_slideshow_full  avia-builder-el-no-sibling  first flex_column_div  '     ><style type=\"text\/css\" data-created_by=\"avia_inline_auto\" id=\"style-css-av-1fqdvoo-54cd302cf31fbd384609541e98bd16bf\">\n#top .av_textblock_section.av-1fqdvoo-54cd302cf31fbd384609541e98bd16bf .avia_textblock{\ncolor:#477067;\n}\n<\/style>\n<section  class='av_textblock_section av-1fqdvoo-54cd302cf31fbd384609541e98bd16bf '   itemscope=\"itemscope\" itemtype=\"https:\/\/schema.org\/CreativeWork\" ><div class='avia_textblock av_inherit_color'  itemprop=\"text\" ><h1><strong>SWITZERLAND APPROVES TAX REFORM <\/strong><\/h1>\n<\/div><\/section><br \/>\n<div  class='avia-logo-element-container av-1axsj4o-ec68728dffcf1f410df5cbc899b499be av-border-deactivate avia-logo-grid avia-content-slider avia-smallarrow-slider avia-content-grid-active noHover avia-content-slider-even  avia-builder-el-3  el_after_av_textblock  el_before_av_textblock  avia-content-slider1' ><div class='avia-smallarrow-slider-heading '><div class='new-special-heading'><h3 class='av-logo-special-heading-text '>Contribution by<\/h3><\/div><\/div><div class=\"avia-content-slider-inner\"><div class=\"slide-entry-wrap\"><div  class='slide-entry av-1wyxi2-d26a79870220ae277d21a799bca92211 flex_column no_margin av_one_fourth real-thumbnail post-entry slide-entry-overview slide-loop-1 slide-parity-odd post-entry-last first'><a href=\"https:\/\/www.ey.com\/ch\/en\/home \" data-rel='slide-1' class='slide-image' title=''  target=\"_blank\"  rel=\"noopener noreferrer\"><span class='av-partner-fake-img' style='padding-bottom:61.919504643963%; background-image:url(https:\/\/www.lcta.ch\/site\/wp-content\/uploads\/2019\/06\/EY-logo-new.png);'><\/span><\/a><\/div><\/div><\/div><\/div><br \/>\n<section  class='av_textblock_section av-141audk-51c67f99a748c4b96d9ca33a328f7537 '   itemscope=\"itemscope\" itemtype=\"https:\/\/schema.org\/CreativeWork\" ><div class='avia_textblock'  itemprop=\"text\" ><p>On 19 May 2019, in a popular vote, Switzerland approved the Federal Act on Tax Reform and AHV (Old-Age and Survivors Insurance) Financing (TRAF) as adopted by the Federal Parliament last fall. The tax reform\u2019s objectives include: (i) securing the long-term tax attractiveness of Switzerland as a business location; (ii) restoring international acceptance of the Swiss tax system; and (iii) securing an appropriate level of tax revenue. The tax reform brings the replacement of certain preferential tax regimes with a new set of internationally accepted measures. The legislative changes align with the broad reduction of the cantonal corporate tax rates.<\/p>\n<p>The last proposed tax reform with the same aim \u2013 Corporate Tax Reform III \u2013 was rejected by the Swiss voters at the beginning of 2017. Since the need for tax reform was undisputed, the Federal Council immediately drew up a new proposal. Based on the rejection of Corporate Tax Reform III, TRAF was combined with additional AHV financing as a form of socio-political compensation.<\/p>\n<h3><strong><em>Core tax measures<\/em><\/strong><\/h3>\n<p><em>Abolishment of preferential tax regimes<\/em><\/p>\n<p>At the cantonal level, tax privileges for holding companies, domicile companies and mixed companies are terminated. At the federal level, the profit allocation rules for principal companies and Swiss finance branches no longer apply.<\/p>\n<p><em>Tax-free disclosure of hidden reserves<\/em><\/p>\n<p>Hidden reserves including any self-created goodwill at the point in time of transition from privileged to ordinary taxation or migration to Switzerland are confirmed by the tax authorities. In the case of a migration to Switzerland, the so called step-up system is applied. The tax-free disclosed hidden reserves are to be depreciated annually at the rate applied for tax purposes to the respective assets. In the case of a transition, the so-called two-rate system is applied. Profits relating to the realization of hidden reserves that were generated under a (now abolished) privileged tax regime are subject to a separate tax rate. The cantons are free to determine the amount of this special tax rate. The two-rate system ensures a competitive income tax burden during a five-year transition period. It should be noted that taxpayers may revoke voluntarily their tax privileged status before the reform enters into force (so-called early transition). Depending on the transitional regulations offered by the cantons, this may be a beneficial option.<\/p>\n<p><em>Patent box with a maximum relief of 90%, mandatory at the cantonal level<\/em><\/p>\n<p>A core element of the reform is the introduction of a patent box regime in accordance with the Organisation for Economic Co-operation and Development standard. In the box, net profits from domestic and foreign patents and similar rights are to be taxed separately with a maximum reduction of 90% (rate at cantonal discretion).<\/p>\n<p><em>R&#038;D super deduction of maximum 50%, optional at cantonal level<\/em><\/p>\n<p>The introduction of this super deduction for domestic R&#038;D is Switzerland\u2019s commitment to be recognized as an attractive location for R&#038;D. The maximum deduction of 50% (rate at cantonal discretion) is limited to personnel expenses for R&#038;D plus a flat-rate surcharge of 35% for other costs and 80% of expenses for domestic R&#038;D carried out by third parties or group companies.<\/p>\n<p><em>Notional interest deduction (NID), optional at cantonal level<\/em><\/p>\n<p>So-called high-tax cantons have the possibility of introducing a NID on excess capital. According to the currently published intentions of the cantonal governments regarding tax rate developments, only the canton of Zurich meets the requirements.<\/p>\n<p><em>Overall tax relief of 70%, mandatory at the cantonal level<\/em><\/p>\n<p>The patent box, R&#038;D super deduction, and NID as well as possible depreciations from the early transition from privileged to ordinary taxation are subject to the overall tax relief of 70%.<\/p>\n<h3><strong><em>Additional measures<\/em><\/strong><\/h3>\n<p><em>Adjustments in taxation of dividend income from qualifying participations<\/em><\/p>\n<p>Dividend income of individuals from qualifying participations is currently partially exempt from taxation to mitigate double taxation at the shareholder level. At the federal level, the taxation rate increases from 50% (business investments) and 60% (private investments) respectively to a standard rate of 70%. At the cantonal level, there is a harmonization of the relief method and an introduction of a minimum taxation rate of 50% (rate at discretion of cantons).<\/p>\n<p><em>Capital tax relief, optional at the cantonal level<\/em><\/p>\n<p>Privileged taxed companies usually benefit from a low capital tax rate. To compensate for the loss of this tax advantage, the cantons are given the possibility to reduce the taxable capital on patents and similar rights, qualifying participations and intra-group loans to also remain competitive from this angle.<\/p>\n<p><em>Adjustments of the capital contribution principle<\/em><\/p>\n<p>Swiss-listed companies may only pay tax-free capital contribution reserves if they pay taxable dividends in the same amount. Intra-group dividends and capital contribution reserves from assets transferred from abroad after 24 February 2008 and in the case of a liquidation are not affected by this scheme. The above rules shall also apply to the issue of bonus shares and nominal value increases from capital contribution reserves.<\/p>\n<p><em>Extension of the flat-rate tax credits on foreign companies\u2019 permanent establishments<\/em><\/p>\n<p>To prevent international double taxation, Swiss permanent establishments of foreign companies should be able to claim withholding taxes on income from third countries with a flat-rate tax credit.<\/p>\n<p><em>Social compensation via the AHV (Old-Age and Survivors Insurance)<\/em><\/p>\n<p>It is assumed that the loss of tax receipts due to the tax reform will amount to CHF2b (in a static view). This shortfall will be compensated through the AHV: (i) 0.3% increase in salary contributions (employers and employees one half each); (ii) allocation of the federal share of the demographic percentage of value added tax to the AHV; (iii) increase in the federal contribution to the AHV from currently 19.55% to 20.2%.<\/p>\n<p><em>Reduction of cantonal profit tax rates<\/em><\/p>\n<p>The reduction of cantonal profit tax rates is not directly covered by TRAF but is necessary to remain attractive from a tax perspective for former tax privileged companies and thus a key part of the proposed tax reform. The increase of the canton\u2019s share of the federal direct tax from 17% to 21.2% enables the cantons to reduce their tax rates.<\/p>\n<p>Based on official announcements made by the cantonal governments, it is expected that the majority of the Swiss cantons will provide attractive tax rates on pre-tax income between 12% and 14% (including federal tax).<\/p>\n<h3><strong><em>Implications<\/em><\/strong><\/h3>\n<p>The tax reform measures will enter into force as of 1 January 2020. The tax reform achieves its main goal of retaining Switzerland\u2019s international attractiveness while having an internationally accepted tax system. The tight time frame <strong>requires prompt planning from taxpayers regarding the transition to the new regulations<\/strong>.<\/p>\n<p>The reform represents the greatest change in the Swiss corporate tax system in decades and <strong>affects essentially all enterprises in Switzerland<\/strong>. Analysis has to be undertaken within the next few months to <strong>properly adjust to the new tax landscape and to avoid a competitive disadvantage<\/strong>.<\/p>\n<\/div><\/section><br \/>\n\n<style type=\"text\/css\" data-created_by=\"avia_inline_auto\" id=\"style-css-av-12zayjs-6dda0f93ee079f55e01017312ce0743a\">\n#top .hr.hr-invisible.av-12zayjs-6dda0f93ee079f55e01017312ce0743a{\nheight:30px;\n}\n<\/style>\n<div  class='hr av-12zayjs-6dda0f93ee079f55e01017312ce0743a hr-invisible  avia-builder-el-5  el_after_av_textblock  el_before_av_textblock '><span class='hr-inner '><span class=\"hr-inner-style\"><\/span><\/span><\/div><br \/>\n<section  class='av_textblock_section av-qsnf6g-9cd9a723cc50d04a451a1c7e4b717b34 '   itemscope=\"itemscope\" itemtype=\"https:\/\/schema.org\/CreativeWork\" ><div class='avia_textblock'  itemprop=\"text\" ><h2><strong>CONTACT<\/strong><\/h2>\n<p><strong>Sandro Jaeger, EY Tax Manager, Lugano<\/strong><\/p>\n<p><a href=\"mailto:sandro.jaeger@ch.ey.com\">sandro.jaeger@ch.ey.com<\/a><\/p>\n<h2><\/h2>\n<\/div><\/section><br \/>\n\n<style type=\"text\/css\" data-created_by=\"avia_inline_auto\" id=\"style-css-av-2mawi0-63cf488238a8a25e0bca2631818abcd0\">\n#top .hr.hr-invisible.av-2mawi0-63cf488238a8a25e0bca2631818abcd0{\nheight:30px;\n}\n<\/style>\n<div  class='hr av-2mawi0-63cf488238a8a25e0bca2631818abcd0 hr-invisible  avia-builder-el-7  el_after_av_textblock  el_before_av_textblock '><span class='hr-inner '><span class=\"hr-inner-style\"><\/span><\/span><\/div><br \/>\n<section  class='av_textblock_section av-jddako-5b1229c1de49140091219890661fe2a5 '   itemscope=\"itemscope\" itemtype=\"https:\/\/schema.org\/CreativeWork\" ><div class='avia_textblock'  itemprop=\"text\" ><p><em>June\u00a07, 2019<\/em><\/p>\n<\/div><\/section><\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>June 7, 2019<\/p>\n","protected":false},"author":0,"featured_media":3729,"comment_status":"closed","ping_status":"closed","template":"","meta":{"footnotes":""},"tags":[],"portfolio_entries":[21],"class_list":["post-4479","portfolio","type-portfolio","status-publish","has-post-thumbnail","hentry","portfolio_entries-review-en"],"publishpress_future_workflow_manual_trigger":{"enabledWorkflows":[]},"_links":{"self":[{"href":"https:\/\/www.lcta.ch\/en\/wp-json\/wp\/v2\/portfolio\/4479","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lcta.ch\/en\/wp-json\/wp\/v2\/portfolio"}],"about":[{"href":"https:\/\/www.lcta.ch\/en\/wp-json\/wp\/v2\/types\/portfolio"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lcta.ch\/en\/wp-json\/wp\/v2\/comments?post=4479"}],"version-history":[{"count":0,"href":"https:\/\/www.lcta.ch\/en\/wp-json\/wp\/v2\/portfolio\/4479\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lcta.ch\/en\/wp-json\/wp\/v2\/media\/3729"}],"wp:attachment":[{"href":"https:\/\/www.lcta.ch\/en\/wp-json\/wp\/v2\/media?parent=4479"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lcta.ch\/en\/wp-json\/wp\/v2\/tags?post=4479"},{"taxonomy":"portfolio_entries","embeddable":true,"href":"https:\/\/www.lcta.ch\/en\/wp-json\/wp\/v2\/portfolio_entries?post=4479"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}