Market overview

Switzerland is under pressure to introduce new tax legislation in line with international BEPS standards but at the same time the country is loathing to part with corporate incentives.

The country experienced a 2% decline in foreign direct investment (FDI) in 2016; it was one of the few European countries that did, although Belgium and the Netherlands also experienced negative growth. In contrast, Europe as a whole experienced on average a 15% rise in FDI, according to figures from EY.

As part of a series of initiatives to remain an attractive business location for multinational enterprises (MNEs), the government in Bern is seeking consensus on balanced reforms that will still allow the cantons flexibility in offering competitive tax rates.

The Swiss Ministry of Finance is planning to release the first draft law of Tax Proposal 17 for public consultation in September 2017. In combination with significant tax rate reductions already announced by Swiss cantons, Tax Proposal 17 outlines tax incentives pertaining to R&D and patent boxes.

"Switzerland's position has decreased a little bit, but relatively speaking, in contrast with other regions, Switzerland is still attractive and will attract new investment, new functions and new capital from multinational enterprises," said Beat Baumgartner, partner at Loyens & Loeff.

The new proposal, outlined in June 2017, follows the rejection of Corporate Tax Reform III (CTR III) in February 2017 in a public referendum. The Social Democratic party had spearheaded the 'No' campaign arguing that the reforms were too generous, affording MNEs with new tax loopholes.

"The Swiss Tax Proposal 17 closely resembles the Swiss Corporate Tax Reform III bill (CTR III) which was rejected earlier this year," said Baumgartner. "TP 17 aims to replace current preferential tax regimes with new tax measures in line with international standards."

The measures proposed in June include plans to increase base erosion limitation to 70%, in contrast with 80% rate suggest by CTR III. Another key element is the increase of the cantonal share of direct federal tax income. TP 17 recommended augmenting the share from 17% to 20.5%, which is less than the 21.2% quota CTR III suggested.

"Tax Proposal 17 proposes to introduce a patent box on 90% of qualifying income as well as a super-deduction of 150% on R&D expenses," said Baumgartner.

Contrary to CTR III, the new reform rejects notional interest deduction, which would have led to deduction on excessive shareholder equity and a consequential negative impact on Swiss cantons.

"Switzerland is reinventing its corporate tax system," said Baumgartner. "In the past, we had limited rules and knowledge in comparison with different jurisdictions. Now, Swiss tax authorities attract more people that know about transfer pricing. In today's rules, it is not about shifting profits to Switzerland for low tax. As a multinational enterprise, you have to have a transfer pricing model that really works."

"In the past we had Swiss low-substance companies, some call them 'letter box' companies, just holding IP rights and functions, and this is definitely changing. Multinationals will bring in significant people. That's beneficial for Switzerland," he added.

The proposal will be subject to public consultation in September 2017, with the outcome to be published in December 2017, and debated by the Swiss Parliament in spring 2018. The law is scheduled to come into effect between 2019 and 2020.

Tax authorities

Federal Tax Administration
Federal Chancellery, Federal Palace West Wing, 3003 Bern
Tel: +41 58 462 21 11
Email: info@bk.admin.ch
Website: www.admin.ch

Tax rates at a glance

(As of July 2017)

Corporate income tax rate 8.5% (a)
Capital gains tax rate 11% - 24% (a/b)
Branch tax rate 8.5% (a)
Personal income tax rate (c)
22% - 48%
Withholding tax
Dividends 35% (d)
Interest 0/35% (e)
Royalties from patents and licences n.a.
Branch remittance tax n.a.
Net operating losses (years)
Carryback Not allowable
Carryforward 7 years

  1. Combined federal/cantonal/municipal corporate income tax rate on profit before tax, depending on domicile, under reservation of privileged tax scheme (mixed companies 6%-10%).
  2. Higher rates may apply to real estate capital gains, depending on location of property.
  3. Combined federal/cantonal/municipal personal maximum income tax rate, depending on domicile.
  4. Under reservation of treaty tax reduction or full exemption under domestic law.
  5. Under reservation of interest paid by banks.

Source: Deloitte

Firm contact details

Loyens & Loeff
Wenger & Vieli