On October 27, 2016, the Swiss Federal Council published a press release in support of the Corporate Tax Reform (CTR) III package. CTR III was approved by Parliament in June 2016, and will be subject to a public referendum on February 12, 2017.
On June 5, 2015, the Swiss Federal Council released the draft bill of CTR III, which included a proposed “license box” regime for cantonal (but not federal) tax purposes, granting preferential treatment for revenue from patents and similar rights associated with research and development (“R&D”) that would align with the OECD BEPS Action 5 “modified nexus” approach. Therefore, the R&D costs relating to the qualifying intellectual property rights would need to be mainly incurred in Switzerland in order to constitute qualifying expenditure for the license box regime.
The qualifying patent income would be calculated based on a residual method. Specifically, all income of a qualifying person would be reduced by (i) financing income, (ii) income from manufacturing, trading and other services if not relying upon patents, (iii) income from routine functions, and (iv) income from trademarks. An uplift of up to 30% of qualifying Swiss costs would be permitted for related foreign R&D expenses (e.g., outsourcing and acquisition costs).
The purpose of the tax law measures included in CTR III is to promote innovation. The aim of the patent box is to tax patent revenue at a reduced rate. According to the press release, for R&D expenditure, the reform provides for a deduction which goes beyond the actual costs, which will then create an incentive for high value-added jobs associated with these activities to be retained in Switzerland or relocated here.