On June 17, 2016, the Swiss parliament adopted the final Corporate Tax Reform III package (CTR III) to strengthen Switzerland’s competitiveness as a business location. The Corporate Tax Reform III includes several notable tax reform measures related to federal and cantonal tax laws.
The important changes are summarized below:
Corporate income tax (CIT) reduction: The Swiss Corporate Tax Reform III (CTR III) foresees gradual reduction of corporate tax rate over a period of five years from the current maximum rate of 20.7% to approximately 14% (including federal tax).
Introduction of a Cantonal patent box: The cantons can exempt from the cantonal CIT the qualifying income derived from patents and similar intangibles property rights up to a maximum of 90%. This measure applies the residual profit approach in line with the Organization for Economic Co-operation and Development’s (OECD’s) modified nexus approach.
Optional Cantonal research and development (R&D) deduction: An optional cantonal deduction of up to 150% with respect to R&D expenditures incurred in Switzerland is introduced.
Introduction of a notional interest deduction (NID): An interest deduction calculated on the ‘surplus’ equity, i.e. equity exceeding a certain threshold, is introduced for all the businesses at the federal level (and optionally at the cantonal level).
Release of hidden reserves: Introduction of a systematic concept for the disclosure of hidden reserves upon a change in tax status/tax liability (relocation to/from Switzerland).
Overall limitation of the tax relief: The benefits derived from the patent box, the special R&D deduction, the NID and the depreciation deductions for the disclosed hidden reserves (step up) can reduce the taxpayer’s total cantonal CIT only by up to 80%.
Abolition of the special cantonal tax regimes: The special cantonal tax regimes for holding, mixed, and auxiliary companies are abolished. A five-year transitional period will be provided, when the new law becomes effective.
Capital tax adjustments: The cantons can provide for a reduction of their capital tax on participations, patents/comparable rights, and intercompany loans.