Tax & Accounting Blog

Switzerland Provides Update on Patent Box Proposals

BEPS, Blog, Global Tax Planning, International Reporting & Compliance January 23, 2018

On January 11, 2018, the Swiss Federal Department of Finance (FDF) issued a press release on the Swiss Federal Council meeting held on January 10, 2018, on the Tax Proposal 17 (TP17) proposals, which include patent box incentive measures. During the January 10th meeting, the Federal Council discussed the results of the September 6th consultation.

As planned, the FDF will send proposed legislation to the Federal Council in the spring 2018 for consideration that would implement the TP17 proposals, with Swiss Parliamentary debate on the legislation to conclude as early as autumn 2018.

Background

On June 17, 2016, the Swiss Parliament adopted the Corporate Tax Reform III (CTR III) measures. The patent box measures were scheduled to enter into force from January 1, 2019, but they were rejected in a public referendum held on February 12, 2017.

On June 1, 2017, the Federal Council issued a press release on TP17. The steering body, comprised of federal and cantonal representatives, adopted recommendations on TP17, in an effort to implement a new corporate tax reform proposal. The objectives of TP17 are to boost Switzerland’s appeal as a business location, achieve international acceptance and increase tax revenue. One of the recommendations of the steering body includes the introduction of a mandatory patent box at the cantonal level (see BEPS Action 5).

On June 9, 2017, the Federal Council discussed the tax policy reform agenda and adopted the parameters for TP17. It instructed the FDF to submit a TP17 consultation draft to it by September 2017.

On September 6, 2017, the Federal Council announced a public consultation on TP17, which included the proposed legislation and corresponding explanatory report. The consultation included the following patent box proposals:

  • Patent box incentive regime (mandatory), with profits from patents and similar rights taxed at a lower Swiss rate based on the OECD’s “modified nexus” approach.
  • Additional R&D deductions (voluntary) of up to 50% of qualifying domestic expenditures.

Tax relief from patent box and additional R&D deductions would not be allowed to exceed 70 percent of taxable profits, which would include amortization based on the previous Swiss special cantonal tax regimes. 

Comments to the consultation were due by December 6, 2017.

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