New tax breaks to replace special status

The reform was adopted in the Senate by a vote of 31 to 9, and must now pass through the House of Representatives. Keystone

The Swiss economy should benefit from new tax breaks to mitigate the abolition of special status for foreign companies, which was approved Monday by the Senate as part of the “tax reform III agenda”. The dossier must now pass through the House of Representatives.

The reform was launched under pressure from the Organisation for Economic Cooperation and Development (OECD) and the European Union, which wish to put an end to unfair competition that benefits foreign businesses with special status in Switzerland.

Since the reform could potentially cause multinationals to find Switzerland a less attractive business location, the cabinet is now focusing on developing a system of tax breaks that will benefit all businesses.

Not all cantons will be affected by the reform in the same way. Special tax status for companies will be removed primarily in cantons that benefit the most: Basel, Zug, Geneva, Vaud, Neuchatel, Basel and Schaffhausen.

The reform of corporate taxation will be implemented via several instruments, including a system of tax breaks for research and innovation (royalty boxes). Cantons will also be able to deduct expenses incurred for research and development, introduce targeted relief from capital taxation, and lower the tax rates on businesses’ benefits, which vary from one region to another.

Under pressure

The Swiss government has been under pressure to deliver reforms that would both address concerns about fair competition, and retain the attractiveness of Switzerland as a location for multinational headquarters.

In October, Switzerland’s State Secretariat for International Financial Matters (SIF) wrote in a statementExternal link that it expected “the participation of the largest financial centres will lead to the creation of a level playing field for Switzerland and its competitors”.