Base erosion and profit shifting (BEPS)
Based on the results of the BEPS project, Switzerland has launched several actions in order to implement BEPS measures into the Swiss tax law, in particular:
- Country-by-country (CbC) reporting: On 1 December 2017, the Multilateral Competent Authority Agreement on the Exchange of CbC reports, as well as the corresponding Swiss law, have entered into force. Generally, Swiss-headquartered multinationals with a revenue exceeding 900 million Swiss francs (CHF) are required to prepare a CbC report. They will have to draw up a first CbC report in the year 2019 for the year 2018. The automatic exchange of these reports between the partner states started in 2020. Switzerland and its partner states will therefore exchange CbC reports from 2020.
- Multilateral Instrument (MLI): On 7 June 2017, Switzerland signed the MLI. Switzerland will implement minimum standards either within the framework of the MLI or by means of the bilateral negotiation of DTTs. The MLI was approved by the Swiss parliament during the standard parliamentary approval process in spring 2019. The MLI entered into force on 1 December 2019. It should, however, be noted that the entry into effect for Swiss covered tax agreements is postponed until Switzerland has renegotiated the relevant double tax agreement.
The MLI includes a principal purpose test (PPT) based on which treaty benefits may be refused if an abusive arrangement exists.
The implementation of further BEPS actions into the Swiss tax law and double tax treaties (DTTs) is an ongoing process.
Federal Act on Tax Reform and AHV (old-age and survivors' insurance) Financing (TRAF)
On 19 May 2019, the Federal Act on Tax Reform and AHV Financing (TRAF) was approved in a public vote. At the federal level, the measures of the TRAF entered into effect on 1 January 2020. The implementation of the voluntary measures of the TRAF at cantonal levels may vary from canton to canton due to the respective legislative processes.
The TRAF includes, among other things, the following main cornerstones, whereas some cornerstones must be implemented by the cantons others can be implemented on a voluntary basis:
- Introduction of a patent box at cantonal and communal levels (mandatory).
- Additional deductions of up to 50% for research and development expenses (R&D super-deduction) at cantonal and communal levels.
- Abolition of the current tax privileges (see Privileged cantonal tax regimes in the Tax credits and incentives section; mandatory).
- Regulations in relation to the transition from a privileged taxation to ordinary taxation, as well as regulations for entities that enter into and exit out of a tax liability in Switzerland (mandatory).
- Adaption of the cantonal capital tax base for participations, patents, and loans to group companies.
- Increase of the minimum taxation of dividend income for individuals (mandatory).
- Restrictions to distribute capital contribution reserves for companies listed in Switzerland (federal provision).
- Additional financing of the AHV (old-age and survivors’ insurance).
Furthermore, most cantons lowered their corporate income tax rates and introduced lower capital tax rates or adjusted the tax base for capital tax with the introduction of the TRAF.
Value-added tax (VAT) law changes
The Swiss VAT law was partially revised and includes, among other things, the following changes since 1 January 2018:
- Swiss VAT rates:
- Ordinary tax rate: 7.7% (until 31 December 2017: 8.0%).
- Special tax rate: 3.7% (until 31 December 2017: 3.8%).
- Reduced tax rate: 2.5% (remained unchanged).
- The tax liability of foreign companies that supply goods to Switzerland is newly calculated on the worldwide turnover. Accordingly, if a company generates less than CHF 100,000 from the supply of goods to Switzerland, but at least CHF 100,000 in turnover globally, it is liable for VAT in Switzerland starting with its first Swiss franc of turnover. Electronic newspapers, magazines, and books without advertising character are subject to the reduced Swiss VAT rate of 2.5%.
Further, on 1 January 2019, a new regulation for foreign-based mail-order companies entered into effect. Mail-order companies are liable for VAT in Switzerland if they generate at least CHF 100,000 annual turnover from small consignments to Switzerland that are import-tax-free.
The Swiss Federal Tax Administration announced that no interest on late payments will be levied for all tax invoices in relation to Federal Tax which are due between the 1 March 2020 and 31 December 2020. In addition, the Swiss Federal Tax Administration recommends benevolent treatments of requests for postponement or even waivers of tax payments due in case such payments would be very harmful to the taxpayers. At the cantonal level, the Cantonal Tax Authorities announced similar cantonal relief measures which vary from canton to canton. Furthermore, certain cantons (i.e. Argovie, Valais, and Zug, others may follow) offer the possibility to book a COVID-19 provision in the 2019 financial statements to a certain extent if the conditions are met.