Swiss voters rejected two important proposals in 2017: the third series of corporate tax reforms (CTR III) and the retirement provision reform (2020 retirement provision). Nevertheless, the need for reform is undisputed, which is why the Federal Council and Parliament immediately drew up a new proposal. A competitive and balanced system is to be created with the tax measures. Previous tax privileges for companies that operate predominantly internationally (status companies) will be abolished. The same taxation rules will apply to all companies in the future, be they large corporations or small and medium-sized enterprises (SMEs). There is a need for action in the case of the AHV too, as receipts and expenditure are becoming increasingly imbalanced. The AHV and tax reform will significantly improve the AHV's financial situation and thus help to secure AHV pensions.
With the Federal Act on Tax Reform and AHV Financing, the Federal Council and Parliament are taking account of the criticism of the two proposals rejected in 2017. The supplementary financing for the AHV will create social compensation for companies' tax relief, and greater consideration is given to the concerns of the cities and communes. Parliament passed the proposal on 28 September 2018. The Council of States approved the proposal with 39 votes in favour, 4 against and 2 abstentions, while the National Council had 112 votes in favour, 67 against and 11 abstentions.
Significance of status companies
The Confederation's receipts from status companies totalled approximately CHF 3.6 billion on average per year from 2012 to 2014 (excl. cantons' share of direct federal tax). This corresponds to about half of the Confederation's total profit tax receipts. In the cantons and communes, the estimated share is CHF 2.1 billion on average from 2012 to 2014 (incl. cantons' share of direct federal tax), which is about one fifth of the annual profit tax receipts. At an estimated 47.6%, status companies' share of private companies' expenditure on research and development (R&D) is very significant.
Key tax reform measures
The starting point for the tax reform is the abolition of the arrangements for cantonal status companies which are no longer accepted internationally. In order for Switzerland to remain an attractive business location, this measure will be accompanied by the introduction of new tax-related special arrangements to promote research and development (R&D): the patent box will allow a portion of the profits from inventions to be taxed at a reduced rate in the cantons in the future. The cantons will additionally have the opportunity to make provision for an additional deduction of no more than 50% for R&D expenditure. Moreover, cantons with an effective profit tax burden of at least 18.03% can introduce a deduction for self-financing. These special arrangements will be accompanied by a relief restriction, which includes a binding provision for the cantons whereby at least 30% of a company's profits must always be taxed before the special measures are applied.
To take account of the proposal's balance, the proposal also contains the following measures:
- Increased dividend taxation to 70% for the Confederation and at least 50% for the cantons, although the cantons can also make provision for a higher level of taxation;
- Adjustments to the capital contribution principle – restriction of the tax-exempt distribution of capital contribution reserves;
- Consideration of the cities and communes within the scope of the increase in the cantons' share of direct federal tax.
Moreover, it is planned to raise the cantons' share of direct federal tax revenue to 21.2% (previously: 17%). This will give the cantons fiscal policy leeway to reduce their profit taxes if necessary and thus remain competitive. The cantons have disclosed their implementation plans. It is thus clear how the tax reform will affect each canton. Large corporations will tend to pay more taxes, while SMEs will pay less than today. With the additional CHF 1 billion from direct federal tax, the cantons will also compensate the cities and communes for any reduction in tax receipts.
In addition, to prevent upheaval among the cantons, fiscal equalization will be adjusted in line with the new reality in terms of tax policy. The financially weak cantons will receive around CHF 180 million from the Confederation for seven years.
An additional CHF 2 billion for the AHV
In the interests of social equality, the new special tax arrangements for companies will be supplemented by measures to finance the AHV. The AHV's financial situation is visibly deteriorating, as expenditure is growing faster than receipts. The proposal will ensure that the AHV receives an additional CHF 2 billion per year as early as 2020. The Confederation will contribute about CHF 800 million of the additional receipts. The remaining CHF 1.2 billion will be borne by companies and insured persons. AHV contributions will be raised slightly for the first time in more than 40 years. The increase will amount to 0.3 percentage points. The contribution rate for employers and employees will be increased by 0.15% each, i.e. by CHF 1.50 per CHF 1,000 earned.
The proposal will considerably reduce the AHV financing shortfall. Nevertheless, the planned structural reform of the AHV (AHV 21) remains inevitable in order to stabilise the AHV financially.