TRAF – No more new principal companies and Swiss finance branches from 2019
Bern, 15.11.2018 – In the context of the bill on tax reform and AHV financing (TRAF), the Federal Tax Administration (FTA) will no longer apply the federal practices concerning principal companies and Swiss finance branches to new companies from 2019.
TRAF introduces legislative measures in order to bring Swiss corporate tax law in line with international requirements. As announced in the Federal Council dispatch on tax proposal 17 (now: TRAF), the federal practices on tax allocation for principal companies and Swiss finance branches will also be abolished in parallel to the abolition of the rules concerning cantonal status companies.
Unlike the rules concerning cantonal status companies, the abolition of federal practices does not require any legislative amendment. As a first step, the FTA will therefore ensure that federal practices are no longer applied to new companies from 2019. With the entry into force of TRAF at the beginning of 2020, the federal practices for existing principal companies and Swiss finance branches will also be abolished.
Companies operating internationally often group their structures into larger units and centralise functions, responsibilities and risks within the group in so-called principal companies. If this principal company is located in Switzerland, some of the net profit is exempt from taxation in Switzerland (international tax allocation).
Swiss finance branches are Swiss financial permanent establishments of foreign companies and as such are responsible for lending within foreign groups. The calculation of a usage fee for the capital made available to the Swiss permanent establishment reduces the taxable net profit of the Swiss finance branch in Switzerland.