Status as at September 2018 – The tax proposal and AHV financing (TRAF) will maintain the appeal and competitiveness of Switzerland as a business location and thus also jobs. It will secure the tax receipts of the Confederation, cantons and communes. Large corporate groups and SMEs will be taxed in the same way in the future. This will reduce the overall tax burden for SMEs. By linking the tax reform and AHV financing, the population will benefit directly. In the long term, TRAF will ensure general prosperity in Switzerland, provide certainty and predictability for companies and help secure pensions. The starting point for the proposal is the replacement of existing tax regimes that are no longer in keeping with international standards.
Swiss voters rejected the third series of corporate tax reforms (CTR III) on 12 February 2017. The current tax system and the tax privileges of the cantonal status companies have thus remained in force. These privileges are no longer in line with international standards. For companies which are active on a cross-border basis, the situation leads to legal and planning uncertainties and damages the location and reputation of Switzerland.
International tax competition has recently intensified once again, and numerous countries are striving to boost their competitiveness. A trend towards profit tax reductions and the promotion of research and development (R&D) by means of tax incentives can be observed. TRAF will ensure that the tax burden remains competitive.
Great economic importance of status companies
The Confederation’s receipts from status companies totalled approximately CHF 4.3 billion on average (incl. cantons’ share of direct federal tax) from 2012 to 2014, or CHF 3.6 billion (excl. cantons’ share of direct federal tax) per year. This corresponds to about half of the Confederation’s total profit tax receipts. In the cantons and communes, the average estimated share of CHF 1.4 billion (excl. cantons’ share of direct federal tax) for the years 2012-2014 is about one seventh of the annual profit tax receipts, or at CHF 2.1 billion (incl. cantons’ share of direct federal tax) about one fifth of the annual profit tax receipts. At an estimated 47.6%, status companies’ share of private companies’ R&D expenditure is very significant.
Key TRAF measures
The starting point for TRAF is the abolition of the arrangements for cantonal status companies which are no longer accepted internationally. In order for Switzerland to remain an attractive business location, this measure will be accompanied by the introduction of new tax-related special arrangements to promote R&D: the patent box will allow a portion of the profits from inventions to be taxed at a reduced rate in the cantons in the future. The cantons will additionally have the opportunity to make provision for an additional deduction of no more than 50% for R&D expenditure. Moreover, cantons with an effective profit tax burden of at least 18.03% can introduce a deduction for self-financing. These special arrangements will be accompanied by a relief restriction, which includes a binding provision for the cantons whereby at least 30% of a company’s profits must always be taxed before the special measures are applied.
To take greater account of the proposal’s balance, TRAF also contains the following measures:
- Increased dividend taxation to 70% for the Confederation and at least 50% for the cantons, although the cantons can also make provision for a higher level of taxation;
- Adjustments to the capital contribution principle;
- Consideration of the cities and communes within the scope of the increase in the cantons’ share of direct federal tax;
- AHV supplementary financing of around CHF 2 billion.
Moreover, it is planned to raise the cantons’ share of direct federal tax revenue to 21.2% (previously: 17%). This will give the cantons fiscal policy leeway to reduce their profit taxes if necessary and thus remain competitive. At the same time, the reform burden will thereby be distributed equally between the levels of government.
In addition, to prevent upheaval among the cantons, fiscal equalization will be adjusted in line with the new reality in terms of tax policy.
TRAF takes account of the need for appropriate social equality. People with lower incomes will benefit the most from this. Shareholders will be taxed more heavily. The cantons have disclosed their implementation plans. It is thus clear how TRAF will affect each canton.
- Disclosure of hidden reserves when companies arrive and move away;
- Transference adjustments;
- Flat-rate tax credit adjustments.
Confederation to support cantons
The cantons will receive CHF 990 million p.a. from the Confederation as a result of the increase in their share of direct federal tax. Moreover, an additional CHF 180 million p.a. will go to the financially weak cantons for a period of seven years. The additional receipts generated by raising the partial taxation rate to 70% for revenue from qualifying dividends will amount to around CHF 80 million p.a. for the Confederation. The cantons will benefit indirectly from this through higher revenue from direct federal tax. The cantons are also free to tax dividends more heavily than before.
The Federal Council adopted the dispatch on 21 March 2018. The bill was adopted by Parliament in the final vote on 28 September 2018. It is planned that the first TRAF measures will come into force at the start of 2019 and the majority of the measures will come into force in 2020. If a referendum is called, it will be held on 19 May 2019.