Switzerland signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“Multilateral Instrument” or “MLI”) on 7th June 2017 in Paris.
The Convention is a key outcome of the OECD/G20 Base Erosion and Profit Shifting (BEPS) project, which aims to offers concrete solutions for governments to close the gaps in existing international tax rules by transposing results from the OECD/G20 BEPS Project into bilateral tax treaties worldwide.
The Convention will serve to efficiently amend double taxation agreements in line with the minimum standards agreed upon in the BEPS project. According to the Switzerland’s media release, Switzerland will implement these minimum standards either within the framework of the Multilateral Convention or by means of the bilateral negotiation of double taxation agreements.
About 70 countries at all levels of development have signed this Multilateral Instrument (MLI) at the OECD Centre in the presence of Secretary-General OECD at the same time. A number of jurisdictions have also expressed their intention to sign the MLI as soon as possible and other jurisdictions are also actively working towards participation in the multilateral instrument.
The Federal Council will submit the BEPS Convention for public consultation towards the end of 2017. It will undergo the standard parliamentary approval process before entering into force.
The Finance Department of Canada has declared that negotiations to update its Double Tax Agreements (DTA) with the Swiss Confederation will be held in June 2017. The main objective of this release is to ensure that persons whose interests are affected have an opportunity to inform the Government of any particular issues of double taxation that might be resolved in a tax treaty. The Government is particularly interested in gathering knowledge of any difficulties encountered by Canadians under the German tax system so that these issues might be considered in negotiations. Persons are invited to give their comments regarding this negotiations and send it to the Finance Department.
The Swiss Federal Department of Finance announced that during its meeting on 2 June 2017, it decided that the partial revision of the Value Added Tax Act adopted by the Parliament will come into force on 1st January 2018.
Under the new regime, to become VAT liable, worldwide turnover ought to be considered rather than recently Swiss turnover. Consequently, organizations whose worldwide turnover is no less than 100,000 CHF will be obligated to VAT from the principal franc of turnover in Switzerland. Previously, foreign companies could provide their services in Switzerland without VAT up to a turnover level of CHF 100,000.
The Federal Council will delay the execution of the reconsidered framework until January 1, 2019, for mail-arrange organizations, on the grounds that Swiss Posts needs more opportunity to actualize the specialized arrangements of the new law.
Accordance with this regime, the clients will no longer need to pay the taxes and fees imposed by customs upon importation, however it will be an obligation of the mail-order companies to bill clients for VAT if the mail-order annual turnover from small consignments is at least CHF 100,000.
The steering committee incorporate of federal and cantonal representatives has adopted recommendations on a balanced corporate tax reform proposal III (TP17) on 1st June 2017 for the attention of the Swiss Federal Council. The new proposals come less than four months after Swiss voters rejected a major renovate of the corporation tax aspect. Such Reform can have a significant impact on the tax burden of Swiss-based organizations and permanent establishments. The draft proposal incorporates the essence of these discussions and is designed as a recommendation to the Swiss Federal Council, which will craft the final proposal. One of the key objectives is to maintain Switzerland as an attractive tax and business location. It is expected that the new corporate tax law will be enacted at 2020.
The key recommendations of the steering committee for TP17 are the following:
- Termination of the current special cantonal tax status (holding, mixed, principal, and current finance branch notional interest deduction regimes) for companies;
- Under the scheme, minimum family allowances would rise CHF30 per month for each child in full-time education;
- Tax relief achieved through the patent box and the excess deduction for research and development costs may be restricted, up to a maximum of 50%;
- Introduced a special tax relief measures of 70% at cantonal level;
- Increase of profit tax assessment for individual generous shareholders (at least 10%): Direct government impose: 70% duty base and Cantonal level: least 70% expense base as a financing and remuneration measure;
- Increase of the cantons’ share of direct federal tax from 17% to 21.2% according to finance cantonal rate reductions and other corporate tax reform at cantonal level.
It is expected that the Federal Council will decide the essential parameters of the TRP 17 and decide on further procedures and the relevant timeline in June 2017. The corporate tax reform law (TRP 17) can then be presented to Parliament in the Spring Session of 2018.
Switzerland and Kosovo signed a Double Taxation Agreement (DTA) in the area of taxes on income and capital on 26 May 2017. The agreement will ensure legal certainty and a contractual framework that will have a beneficial impact on the two states’ economic relations.
The Pakistan and Switzerland signed an Income Tax Treaty for the avoidance of double taxation and the prevention of fiscal evasion in Islamabad on 21 March 2017. Once in force and effective, the new treaty will replace the Pakistan – Switzerland Income Tax Treaty (2005).
The Swiss Federal Tax Administration (SFTA) published safe harbor interest rates on intra-group loans in Swiss Franc as well as in foreign currencies. On 13 February 2017, SFTA released a circular in relation to safe haven interest rates.
According to circular, loans granted to shareholders or related parties, the minimum interest rate for Swiss franc (CHF) is 0.25% in terms of equity finance. For debt financing, actual cost plus at least 0.5% interest rate is applicable on amount up to CHF 10 million and 0.25% on more than CHF 10 million.
The maximum interest rate for Swiss franc (CHF) loan made from related parties is 1% to 2.25% for real estate loans depending on loan type and level of debt financing. In case of operational loans received from a commerce and industry, a 3% interest rate for amounts up to CHF 1 million and 1% for any surplus amount. And loans received from holding and investment management, a 2.5% interest rate for amounts up to CHF 1 million and 0.75% for any excess amount.
The tax administration also published another circular dated on 14 February 2017 regarding safe harbor rates for loans denominated in a foreign currency. The safe harbor rates for loans denominated in US dollars and Euros are 2.25% and 1% respectively.