Federal Council for adoption of third series of corporate tax reforms
Bern, 27.10.2016 - In a media conference on 27 October 2016, Federal Councillor Ueli Maurer outlined the Federal Council's arguments in favour of adopting the third series of corporate tax reforms. The proposal which will be voted upon on 12 February 2017 envisages the abolishment of special arrangements for status companies under corporate tax law which are no longer accepted internationally. At the same time, the reform makes provision for new tax measures to prevent the hitherto privileged companies from moving abroad. In addition, the cantons will be given the fiscal policy leeway they need to maintain their competitiveness.
The objective of the third series of corporate tax reforms (CTR III) is to maintain Switzerland as an attractive location, to strengthen the international acceptance of the tax system and to ensure the tax revenue of the Confederation, the cantons and the communes in the future. If Switzerland were only to abolish the cantonal tax statuses which are no longer accepted internationally without introducing new measures, job losses and lower tax receipts for public bodies could be expected. The cantonal status companies currently employ around 150,000 people in Switzerland. At the cantonal and communal level, they make a contribution of 20% to tax receipts. At federal level, their share of profit tax is almost 50%. They are also responsible for almost half of all research expenditure.
Focus on promotion of innovation
Together with the Federal Council, Parliament is also recommending that the third series of corporate tax reforms be adopted. The National Council approved the proposal by 139 votes to 55, the Council of States by 29 votes to 10. The reform was prepared in close cooperation with the cantons. In the media conference with Federal Councillor Ueli Maurer, President Charles Juillard, Finance Director of the canton of Jura, and Vice-President Eva Herzog, Head of the Finance Department of the canton of Basel Stadt, advocated the favourable opinion of the Conference of Cantonal Finance Directors regarding the CTR III.
Regarding the tax law measures which are being introduced with the CTR III, the focus is on promoting innovation. The aim of the patent box is to tax patent revenue at a lower level. For research and development expenditure, the reform makes provision for a deduction to be made which goes beyond the actual costs. This will create an incentive for high value-added jobs which are associated with these activities to be retained in Switzerland or relocated here. With the interest-adjusted profit tax, Switzerland should remain competitive for intra-group financing.
Fiscal policy leeway for cantons
The new special arrangements with the third series of corporate tax reforms can only partially offset the previous tax benefits of the status companies. In view of the unchanged fierce international tax competition, many cantons therefore intend to lower their profit taxes so as to maintain their tax appeal. All companies will benefit from this measure, even small and medium-sized enterprises (SMEs).
The Confederation wants to share the financial burden of these profit tax reductions because it will benefit from the preservation of tax competitiveness. It is thus envisaged that the cantons' share of direct federal tax receipts will be increased from 17.0% to 21.2%. In addition, fiscal equalization will be adapted to the new tax law circumstances so that major upheaval among the cantons can be avoided.
The financial impact of the reform depends on various factors. This includes the type of implementation by the cantons, companies' behavioural adjustments and tax law developments in other countries. These dynamic effects cannot be predicted in advance. Excluding these factors, the reform entails a burden of around CHF 1.1 billion annually for the federal budget. This amount goes to the cantons and creates fiscal policy leeway for any profit tax reductions. Further declines in receipts will occur with the interest-adjusted profit tax on above-average equity capital, the amount of which will depend on the interest rates applied.
Overall, the reform will lead to Switzerland remaining an attractive location for companies and to each canton being able to tailor its tax policy to its economic and financial situation. The reform will prevent the exodus of the existing status companies and thus potential tax losses of over CHF 5 billion for the Confederation, the cantons and the communes. At the same time, the foundations are being laid to make it possible for new tax bases to be developed via the migration of new corporate activities or entire companies and for new jobs to be created.
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