As previously reported by Goldblum and Partners, last September the Federal Council has announced a public consultation on the tax proposal 2017 (TP17). The deadline for submitting comments to the consultation was December 6, 2017.
On January 10, 2018, Federal Councillor Maurer disclosed the results of the consultation to the Federal Council, acknowledging that, while the consulted parties seem to agree with the urgent necessity of a tax reform – particularly addressed at lowering corporate taxes – the measure is also encountering political opposition. Indeed, the TP17 aims at both increasing the cantonal share of federal tax and the dividend taxation for natural persons to 70%. To quote the words of the Federal Department of Finance, “a high degree of willingness to compromise on the part of all parties concerned is indispensable”.
In this sense, the FDF had been planning to continue the negotiations with all the parties involved, included the cantons, communes and the other stakeholders, pointing out that so far the outcome has been “positive”. In order to avoid the event of a second referendum, the support of all the parties involved is necessary when the TP17 reaches the Parliament.
In its meeting followed suit on January 31, 2018, the Federal Council has set the parameters for the dispatch of the TP17 to the Parliament. The Council confirmed the measures included in the consultation draft, with only one relevant change: the cantonal share of federal tax should be increased from 17% to 21.2% (not to 20.5% as set in the draft).
What’s coming next
According to the plan set up last September and confirmed at the January 31 meeting, the Federal Department of Finances will provide a final version of the dispatch by the end of March 2018. Together with the dispatch, the FDF will also draft a report analysing the financial outcomes of the TP17 for the Confederation and the Cantons.
After that, the Parliament is set to deliberate on the proposal – and final outcome could be reached as soon as Autumn 2018. If everything goes according to plans, and no referendum is called, the first TP17 measures will be effective from early 2019, and all the remaining rules from 2020.
The Patent Box
Interestingly, the TP17 includes some measures concerning Patents and Intellectual Property Rights – the so-called “patent box”. The patent box, which has also been the object of the consultation, provides that:
Profits from patents and similar rights will be kept separated from other profits and taxed at a lower level, following the OECD’s “modified nexus” system. The relief may not exceed 90%. This measure is mandatory.
Additional voluntary R&D deductions of up to 50% of domestic expenditures may be established.
The tax relief based on the patent box and additional deductions for R&D should not exceed the 70% of the taxable profit.
Why is the reform important
The TP17 would eliminate special corporate tax regimes by introducing measures like the Patent Box and the R&D tax deduction. The main purpose is to substantially lower corporate taxes, especially in the wake of the recent US Tax reform, while making sure that Switzerland remains a competitive environment for multinational companies and local businesses.