Federal Council sets parameters for dispatch on third series of corporate tax reforms

Bern, 02.04.2015 - During its meeting yesterday, the Federal Council took note of the results of the consultation on the third series of corporate tax reforms. The general thrust of the bill, i.e. boosting Switzerland as a business location, met with broad approval. However, the Federal Council has made various adjustments based on the findings from the consultation. It has instructed the Federal Department of Finance (FDF) to prepare a dispatch for Parliament by June 2015.

Switzerland's attractive tax environment for companies has made a significant contribution to the country's prosperity in recent years. Companies based here create jobs, make investments and provide an important source of tax revenue.

Because of international developments, namely in the OECD, it would appear that certain currently applicable arrangements are no longer in keeping with international standards. The diminishing acceptance is reducing legal and planning certainty for companies.

The aim of the corporate tax reform is to consolidate international acceptance of Switzerland as a business location and secure the legal framework. Further measures are designed to improve the system of corporate tax legislation and its balance. The reform will thus ensure that companies continue to make an important contribution to financing the tasks of the federal government, the cantons and the communes in the future.


Tax policy measures

The Federal Council is proposing to abolish existing arrangements that are no longer in keeping with international standards. These primarily include the cantonal tax statuses for holding, domiciliary and mixed companies. These amendments are supported by the vast majority of the consultation participants.

The introduction of a royalty box at cantonal level met with broad approval. With regard to the dispatch, this instrument will still undergo modifications that take the latest international developments into account. Because of corresponding requirements raised during the consultation, the cantons should also be given the possibility of applying a higher deduction for research and development expenditure. Moreover, the FDF will examine whether a tonnage tax is to be introduced.

The consultation participants considered the introduction of an interest-adjusted profit tax to be controversial; in particular, it was opposed by a clear majority of the cantons. The Federal Council will thus abandon this measure. In contrast, the possibility for the cantons to introduce targeted capital tax reductions was widely undisputed.

The Federal Council wants to continue to strengthen the tax legislation system too as part of the reform. This includes the abolition of the issue tax on equity capital as well as comprehensive rules for the disclosure of hidden reserves. In contrast, the Federal Council no longer intends to pursue the proposed changes to the participation deduction and the offsetting of losses.

The aim of the reform is to ensure more balanced taxation of participation holders. In order to achieve this, the relief associated with the partial taxation of dividends is to be harmonised for the Confederation and the cantons, and limited to 30%. The minimum stake of 10% will be maintained. In contrast, the Federal Council will refrain from proposing the taxation of capital gains in view of the clear results of the consultation.

Fiscal policy measures

The consultation participants also clearly approved the proposal for the Confederation to give the cantons fiscal policy leeway so that they can supplement the new rules if necessary and lower the general profit tax burden. The costs should be borne 50/50 by the Confederation and the cantons. The cantons' share of direct federal tax is to be increased from 17% at present to 20.5%.

The Federal Council's proposed adaptation of the fiscal equalization mechanism to the new tax policy framework was largely supported. The reduced fiscal utilizability of profits is to be taken into account by means of new weighting factors.

Based on the parameters set by the Federal Council, the quantifiable static financial impact of the reform on the federal finances is CHF 1.1 billion p.a. The additional burden of CHF 1.2 billion stands against approximately CHF 0.1 billion resulting from additional receipts from the modification of the partial taxation of dividends. These figures do not include dynamic effects, namely the influx or exodus of companies or corporate functions. The measures decided by the Federal Council in February to adjust the financial plan will ensure that the remaining burden can be absorbed without short-term expenditure cuts, despite the weaker fiscal policy outlook.

Next steps

The FDF will prepare a dispatch by June 2015. Once that has been adopted, the bill will be ready for parliamentary deliberation. Progress made in the international arena will also have to be taken into consideration as work continues.