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Newsletter, October 5, 2017

On September 6, the Federal Council opened its consultation procedure concerning its Tax Project 17 (TP 17), replacing and revising the controversial Corporate Tax Reform (CTR III) rejected by the Swiss people with the referendum of February 14, 2017.

Following the failure of the CTR III, the Federal Council set up a steering body composed of representatives of the Federation and the Cantons, which during the summer transmitted its recommendations on the future guidelines of the Tax Project 17. Relatively close to the initial reform CTR III but thinned out, please to find below the main changes and guidelines of this Tax Project 17 which should only lightly change before its entry into force.

  • Abolition of the current special tax regimes ;
  • Introduction of a cantonal Patent Box ;
    • The project will favor taxation of income deriving from patent and will exclude copyright protected software from this benefit.
  • Introduction of a super deductibility of research and development costs ;
    • The deduction consists of an additional deduction of up to a maximum of 50% of the labor costs.
  • Notional interest deduction (NID) has been dropped;
  • Increase of partial taxation of dividends fixed to 70% ;
    • Increase at a federal level but also at the cantonal level for the cantons which currently have a lower rate.
  • Implementation of tax neutral disclosure of hidden reserves (« Step up ») ;
    • very similar but refined to previous reform (CTR III) version.
  • The canton’s portion of the direct federal tax revenue is increased from 17% to 20.5% (originally proposed to 21.2%) ;
  • This measure will proably be discussed further at political level.
  • Introduction of a clause in order to take into consideration the impact of the tax reform on the cities and communes (new) ;
  • Increase of child and educational allowances (new) ;
  • Abolition of the 5% limit in case of transposition (new).

The consultation period has been fixed to three month. The Federal Council plans to submit the TP 17 message to Parliament in Spring 2018. Thus the reform could enter into force in 2020 at the earliest. Widely criticized and regularly pointed by the OECD, the special tax regimes will therefore continue for a minimum period of three years.

Supporters of the rejection of CTR III promised a quick and succinct amendment of the reform in order to satisfy quickly the OECD pressures. The legislative apparatus in Switzerland seems to announce the opposite and further lengthens the transition period for companies. However many economic circles, wish a faster entry in force for 2020 at the latest.

Nevertheless, even if some measures adopted seem to be the result of the compromise in order to satisfy the socialist party, which was the main opponent of CTR III, the Tax Project 17 still seems able to maintain Switzerland's economic and tax competitiveness and thus ensuring the sustainability of jobs in Switzerland. Nevertheless, the cantons will have an important role to play, for example by reducing their standard corporate tax rate.

For any questions regarding the subject, we kindly invite you to read our previous newsletters or to contact Mr. Daniel Spitz, Certified tax expert, by phone to 021 311 00 53 or by e-mail to the following address: daniel.spitz@rsmch.ch

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Contact us by phone +41 43 488 5100 (Zurich) or +41  22 888 5050 (Geneva) or submit your questions, comments, or proposal requests.

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Authors

Daniel Spitz
Partner Tax