Swiss Tax Proposals Bid to End EU Dispute While Retaining Appeal

Sept. 22 (Bloomberg) — Switzerland proposed tax changes that it hopes will resolve a dispute with the European Union over preferential rates offered to multinationals while retaining the country’s appeal as business location.

Switzerland will follow 11 EU nations in introducing royalty boxes, which allow lower taxation on revenue from intangible assets such as patents, Finance Minister Eveline Widmer-Schlumpf told reporters in Bern today. That measure and proposals for an interest-adjusted profit tax will ease pressure from the EU, said Armin Marti, leader of corporate tax at PricewaterhouseCoopers in Zurich.

“The proposal includes everything to keep Switzerland attractive as a location for national and international businesses,” Marti said in a phone interview.

Switzerland has been at odds with the EU over its auxiliary tax regime, which allows companies to pay lower rates on overseas earnings. That helped lure hundreds of global corporations from Procter & Gamble Co. to Vitol Group. The new tax proposals must be approved by both houses of parliament.

What’s needed is “a tax system that’s accepted,” Widmer- Schlumpf said. “Switzerland as a small but strong country has a keen interest in a level playing field.”

Switzerland’s move to introduce a special exclusion for international property income follows the U.K.’s decision last year to cut the tax rate on profit attributed to patents and intellectual property to 10 percent — less than half the country’s corporate tax rate of 21 percent.

Cantonal Cushion

The full details on royalty boxes may only be available by the end of 2015 after work by the Organization for Economic Cooperation and Development, Widmer-Schlumpf said.

Measures to improve the tax legislation system, including the abolition of a tax on share sales, are under consideration, the government said. The changes will reduce federal budget revenue by 1.7 billion Swiss francs ($1.8 billion) a year, it said, even as a capital gains tax generates 300 million francs of new receipts.

The government has set aside 1 billion francs to cushion the impact of a decline in revenue on Swiss cantons that have granted special corporate tax privileges.

While Valais has “practically no such companies,” Geneva has many, Widmer-Schlumpf said.

To contact the reporters on this story: Catherine Bosley in Zurich at [e-mail]; Jan Schwalbe in Zurich at [e-mail] To contact the editors responsible for this story: Fergal O’Brien at [e-mail] Dylan Griffiths, Albertina Torsoli