CTR III –Refusal from the Swiss people

On February 12, 2017, the Swiss people have denied the federal project regarding the third corporate tax reform. As a reminder, the subject of the vote, that was only at a federal level, was focused mainly on:

  • The abolition of the special tax status (holding companies, mixed companies, domiciliary companies, etc.);
  • The introduction of the IP Box status;
  • The introduction of hidden reserves in case of departure/arrival/change of status (Step-up);
  • The introduction of a superdeduction related to the R&D;
  • The introduction of the interest deduction on the “exceeding” net equity called “notional interest”.

For the detail on these measures and their effects, please refer to our previous newsletters and conferences on the subject ( https://www.rsm.global/switzerland/news).

The main consequence of this denial is that the special tax status are still in effect until further notice and can therefore still be obtained from the cantonal tax authorities until their abolition, which will happen anyway sooner or later following the request of the EU and of the OECD.

However, the matter in question was not the reduction of the tax rates at a cantonal and communal level. Namely, this reduction is a cantonal measure, that is subject to approval of the people from each canton. This is how the canton of Vaud has adopted by a large majority a decrease of the tax rates that will enter into force in 2019 (see newsletter to this subject (https://www.rsm.global/switzerland/news/corporate-tax-reform-iii-ctr-iii-state-affairs-after-referendum-canton-vaud-and-decision). The politics and the journalists have largely mixed the two questions during the campaign for this vote. The Federal Act on Harmonization of Direct Taxes gives actually a total freedom for each canton to choose which rate they want to apply at cantonal and communal level. Thus, for all Swiss cantons that have already decided for a long time to decrease their tax rates (Lucerne, Neuchâtel and recently Vaud), these rates will enter in force whatever happens and whatever has happened on February 12, 2017. They are potentially compatible with a special tax regime provided that they are still in force, which is currently the case following the refusal of the vote dated February 12.

The future

Switzerland is committed to amend its preferential tax regimes towards its principal partners. There will be therefore no other choice than to abolish them. This reform has brought a referendum because the socialist party was opposed to the introduction of the notional interest deduction and wanted in compensation of the reform an increase of the minimal threshold of dividend taxation at 70%. As a reminder, when an individual owes more that 10% of the share capital of a company, he benefits from a partial taxation of the dividend. Only 60% of the received dividend is currently taxed at the federal level. The cantons can choose the exoneration rate that they want to apply. The socialist party wanted a global increase at 70% which is currently the rate that the canton of Vaud already applies. The other subjects of the reform were not criticized by the socialist party. During the next session of the federal Chambers, if the members of the opposite camp of the Parliament put on a brave face despite the defeat and accept these two slight amendments, the chances for the new project to enter in force quickly without referendum are very high and there are good chances that the CTR III finally sees the light very soon in a simplified form with low impact for companies.

The decrease of the rates remains a cantonal measure that has to be decided by each canton. This decision can then be challenged by the people of each canton through a popular referendum.

We will keep you informed of any developments on this topic.

If you have any questions, please contact Mr. Daniel Spitz, Certified tax expert, by phone to 021 311 00 53 or by e-mail to the following address: daniel.spitz@rsmch.ch