Federal Act on Tax Reform and AHV Financing Recommended by the Federal Council Corporate taxation
and retirement provisions are two prominent areas in Switzerland in dire need of reform. On the one hand, corporate taxation needs to be internationally competitive, while retirement provisions need to be more secure. In lieu of this, a referendum based on the Federal Act on Tax Reform and AHV Financing (TRAF) is scheduled to hold on 19 May 2019. During a joint press conference held three months ago, President Ueli Maurer and the Federal Councilor Alain Berset stated that the acceptance of the proposal was based on the prospect of securing jobs, the AHV, as well as tax receipts.
In 2017, it should be recalled that two proposals were rejected; this is one of the factors the new proposal seeks to make amends on, with particular attention to the needs of the cities and communes. The new proposal also seeks to make more equitable the additional tax burdens introduced, and also with the prospect that tax relief would be provided to companies as social compensation.
The new tax reform has a lot of incentives to companies, one of which applies the same rules to companies in business both presently and the ones to be incorporated in the future. The slight difference in the reform is that internationally operative companies will pay just a bit more tax compared to the other companies. Also, more stringent requirements would be placed on the taxation of dividends and redemption of capital in times to come. This way, Switzerland will continue to hold the top position in the competition for companies which are innovative, thereby promoting an expansion of knowledge and research.
The federal tax receipts have also been predicted to gain an increase from 17.0% to 21.2% since cantons that are attractive as a business location accrue great profit for the Confederation. Hence, cantons plan to reduce profit taxes for all companies while also compensating companies that suffer any unpleasant consequences from their reforms. The short term effect of these reforms is an estimated decrease in the annual receipts of around CHF 2 billion, but then the Federal Tax Administration shows receipts within a reform are higher than they would be without the reform.
However, there exists a legal uncertainty for international companies if tax advantages are not abolished, and this would create countermeasures against Switzerland when dealing with them. As it is now, AHV has financial problems, and receipts are not able to account for the current expenditure. This may continue if life expectancy, among other factors, continues to be on the rise. Although, on the whole, the reform has a reasonable prospect of benefitting Switzerland as a whole.
Legal disclaimer. This article does not constitute legal advice and does not establish a client-attorney relationship. The article should be used for informational purposes only.