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Rechtswissenschaftliches Institut
Introduction to Swiss Tax Law
Fall Semester 2014
René Matteotti
Professor of Law, Chair of Swiss, European and International Tax Law at the
University Zurich and Attorney-at-Law
Madeleine Simonek
Professor of Law, Chair of Swiss and International Tax Law at the University of
Zurich
Rechtswissenschaftliches Institut
Fiscal Sovereignty: 3 Levels of Taxation
• Confederation:
Authority in all areas in which it is empowered by the Federal
Constitution the Confederation must only levy taxes to which it is
authorised by the Federal Constitution.
• Cantons (26 Cantons)
Authority in all areas that are not reserved to the Confederation the
cantons are authorised to levy any type of tax as long as they do not
infringe upon the exclusive authority of the Confederation or upon the
Federal Constitution and Federal Law.
• Municipalities (approx. 2600 Communes):
Authority in all areas that are entrusted to them by the Canton
the municipalities must only levy taxes within the bounds of the
authority delegated to them by the respective cantonal law.
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Rechtswissenschaftliches Institut
Principal Taxes on the Federal Level
Taxes on income Taxes on goods and services
• Income tax (individuals)
• Tax on net profit (legal entities)
• Withholding (Anticipatory) tax
• Value Added Tax
• Stamp duties
• Tobacco tax
• Alcohol tax
• Beer tax
• Mineral oil tax
• Customs duties
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Rechtswissenschaftliches Institut
Taxes on income and on net wealth Taxes on goods and services
• Income and net wealth tax
(individuals)
• Tax on net profit and on capital
(legal entities)
• Withholding tax on certain
income of residents and non-
residents
• Real estate capital gains tax
• Inheritance and gift tax (in
certain cantons)
• Tax on the transfer of
immovable property (in
certain cantons)
• Motor vehicle tax
• Stamp duties
• Dog tax
• Entertainment tax
Principal Taxes on the Cantonal and Communal Level
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Rechtswissenschaftliches Institut
Quelle: Eidg. Finanzverwaltung,
Bundesfinanzen in Kürze –
Rechnung 2011, S. 7
Federal Revenue
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Rechtswissenschaftliches Institut
Principal International Agreements
• Double Taxation Treaties
Wide net of double taxation treaties concluded by Switzerland (as
per 1 January 2013: approx. 95 treaties on income taxes)
• Bilateral Agreements with the European Union, from a tax
perspective in particular of relevance
Agreement on free movement of persons
Agreement on taxation of savings income in form of interest
payments
Agreement on fight against fraud and all other illegal activities to
the detriment of financial interests
Agreement on the elimination of double taxation on pensions
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Rechtswissenschaftliches Institut
Constitutional Principles of Taxation (I)
Art. 127 Federal Constitution
1 The general principles of taxation, particularly the circle
of taxpayers, and the object of the tax and its calculation,
shall be established by statute
2 To the extent that the nature of the tax allows it, the
principles of universality and equality of tax treatment
and of taxation according to economic capacity shall be
followed
3 Intercantonal double taxation is prohibited. The
Confederation shall take the necessary measures
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Rechtswissenschaftliches Institut
Constitutional Principles of Taxation (II)
• Principle of universality
Prohibition of a privileged treatment of certain taxpayers or group of
taxpayers
Prohibition of discrimination and of more burdensome taxation of
certain taxpayers or group of taxpayers
• Principle of equality and ability-to-pay principle
Each taxpayer must contribute to the fiscal revenue of the state
according to his/her economic and personal resources
Horizontal equality: taxpayers who are in the same economic and
personal situations and derive the same amount of taxable income
must be taxed identically
Vertical equality: taxpayers who are in different economic and
personal situations and derive a different amount of taxable income
must be taxed differently
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Rechtswissenschaftliches Institut
Prohibition of Intercantonal Double Taxation
• Prohibition of intercantonal double taxation: actual and
potential double taxation
• Principle of non-discrimination:
a taxpayer who is only taxable in a canton with a part of
his income shall not be treated differently from a taxpayer
who is taxable with all of his income in that canton
Applicable for both the canton of residence and the canton
of source
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Rechtswissenschaftliches Institut
Harmonisation of Direct Taxes (I)
Art. 129 Federal Constitution
1 The Confederation shall set out principles on the harmonisation of the
direct taxes imposed by the Confederation, the Cantons and the
communes; it shall take account of the efforts towards harmonisation
made by the Cantons.
2 Harmonisation shall extend to tax liability, the object of the tax and the
tax period, procedural law and law relating to tax. Matters excluded
from harmonisation shall include in particular tax scales, tax rates and
tax allowances.
3 The Confederation may issue regulations to prevent unjustified tax
benefits.
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Rechtswissenschaftliches Institut
Federal Direct Tax Act
Federal Law on the Federal Direct Tax of 14 December 1990 (FDTL)
(Bundesgesetz über die direkte Bundessteuer [DBG], SR 642.11),
regulating:
• Federal Income Tax levied on the income of individuals;
• Federal Corporate Tax levied on the net profit of legal entities;
• Source Tax levied on the income of certain individuals and legal
entities.
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Rechtswissenschaftliches Institut
Federal Individual Income Tax (I)
Subjects to the Federal Individual Income Tax – Two categories
of taxpayers (I)
• Taxpayers with personal attachment Swiss residents
unlimited tax liability (“world-wide income tax principle”)
- Swiss residence (Art. 3 (1) FDTL)
- Abode of at least 30 days (with gainful activity) or 90 days (without
gainful activity) (Art. 3 (3) FDTL)
• Exception of the world-wide income tax principle: enterprises,
permanent establishments and real estate situated abroad are
unilaterally exempt from income taxes (Article 6 (1) FDTL)
Unilateral exemption method with progression (Article 7 (1) FDTL)
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Rechtswissenschaftliches Institut
Federal Individual Income Tax (II)
Subjects to the Federal Individual Income Tax – Two categories of
taxpayers (II)
• Taxpayers with economic attachment non-residents
limited tax liability (“source principle”) (Art. 4 and 5 FDTL)
real estate in Switzerland
permanent establishment in Switzerland
gainful activity without temporary abode
board members or directors of Swiss corporations
pensions and similar remunerations paid by Swiss
institutions/insurance
• Taxation of the Swiss source income
• Ordinary tax assessment or withholding tax
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Rechtswissenschaftliches Institut
Federal Individual Income Tax (III)
Taxable Income
• Principle of taxation of the overall net income, including:
income from dependent and independent services (incl.
compensatory income)
income from movable and immovable property
income from insurances and seniority allowances
• Tax exempted are inter alia:
capital gains on movable and immovable assets if not realised on
business assets, e.g. realised on private assets (Article 16 (3) FDTL)
Inheritance and gifts; some kind of insurance payments;
financial aids for low-income people (Article 24 FDTL)
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Rechtswissenschaftliches Institut
Income Tax Rates for Individuals
Assumption: single person, without children, taxable
income CHF 100‘000 or CHF 200‘000; tax year 2012:
Taxable Income 100’000 200’000
Federal income tax: 2.9 % 6.8 %
Cantonal income tax (incl. municipal income, without parish tax)
• Berne 20.9 % 24.0 %
• Zurich 13.8 % 18.6 %
• Zug 9.8 % 11.4 %
• Wollerau (Canton of Schwyz) 6.5 % 7.0 %
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Rechtswissenschaftliches Institut
Federal Corporate Income Tax (I)
Subjects to the Federal Corporate Tax – Two categories of
taxpayers
• Taxpayer with personal attachment Swiss residents
unlimited tax liability (Art. 50 FDTL); except of enterprises,
permanent establishment and real estate abroad (Art. 52 (I) FDTL)
Registered office (statutory seat)
Effective place of management
• Taxpayer with economic attachment non-residents
limited tax liability (Art. 51 FDTL)
real estate in Switzerland
permanent establishment and enterprises (carried out by sole
proprietor or partnership) in Switzerland
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Rechtswissenschaftliches Institut
Federal Corporate Income Tax (II)
Determination of the taxable profit
• In principle, the financial statement is authoritative for
corporate tax purposes provided that the financial statement
corresponds with the Swiss accounting rules
• Tax adjustments to the financial statement are only allowed if
expressly stated in the tax law, e.g.
constructive dividends to a shareholder or an affiliated
person
commercially unjustified expenses or depreciations
earnings not entered into the financial statement
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Rechtswissenschaftliches Institut
Corporate Tax Rates
Assumption: share corporation, taxable profit CHF 100‘000
or CHF 1‘000‘000; tax year 2012; rates after tax:
Taxable Profit 100’000 1’000’000
Federal corporate tax: 8.5 % 8.5 %
Cantonal corporate tax (incl. municipal income and parish tax)
• Zurich 18.4 % 18.4 %
• Berne 15.5 % 18.7 %
• Zug 4.5 % 8.8 %
• Sarnen (Canton of Obwalden) 5.24 % 5.24 %
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Rechtswissenschaftliches Institut
Cantonal Corporate Income Tax – Special tax regimes (I)
Holding Tax Regime - Requirements
• Corporation (share corporation, limited liability company)
• Main purpose: permanent holdings in other companies
• No business activities in Switzerland
• Two thirds of the assets consist of participations or two thirds of the
profit consist of profit derived from participations (dividends or capital
gains)
Taxation
• Exempt from cantonal corporate income tax, except of corporate tax
on real estate
• Considerably reduced capital tax rate
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Rechtswissenschaftliches Institut
Cantonal Corporate Income Tax – Special tax regimes
(II)
Domiciliary and Mixed Company Regime - Requirements
• Corporation (share corporation, limited liability company)
• The company’s business activity must mainly be performed abroad,
i.e. no or only secondary business activities in Switzerland
• In principle, at least 80% of both profit and expenses must be
generated abroad
Taxation
• Reduction of the tax basis: income from Swiss sources is fully taxed;
income from foreign sources is only taxed at a quota of 5 - 25 %
depending on the individual case
• Considerably reduced capital tax rate
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Rechtswissenschaftliches Institut
Ongoing discussions with the EU
European Union’s Point of View:
• The privileged Swiss tax regimes are to be considered as
state aid or/and harmful tax competition
• Therefore, they violate the provisions of the Free Trade
Agreement (FTA) from 1972, in particular Article 23 FTA
• Further, the European Union demands from Switzerland to
take over the Code of Conduct on business taxation
In order to settle the (political) dispute, Switzerland plans
modifications of the controversial cantonal tax regimes as a
part of the corporate tax reform III (“UStR III”)
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Rechtswissenschaftliches Institut
Memorandum of Understanding with EU
Which international standards? Prohibition of state aid?
When will «the regimes in question» be regarded as abolished?
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Press release of Federal Department of Finance on 20 June 2014
“New tax measures should be in line with international standards. In return, the
EU member states confirm their intention to lift corresponding countermeasures
as soon as the regimes in question have been abolished. “
Rechtswissenschaftliches Institut
Consultation on Corporate Tax Reform III
24.9.14 Seite 23
On 22 September 2014, Federal Council started consultation on CTR III and
published legislative draft. Key points:
• Abolishment of cantonal tax regimes, federal tax practice re principal
companies and Swiss finance branches
• New regimes to be implemented
• IP-Box (based on British model)
• Interest-adjusted corporate tax (notional interest deduction on safety-
equity)
• Reduction of corporate income tax rates on cantonal level (falls into
cantonal autonomy)
• Selection of further measures to improve the tax legislation system
• Comprehensive rules for the disclosure of hidden reserves (step-up)
• Abolition of issuance tax on equity capital
• Adjustments to participation exemption
• Unlimited loss carry-forward
• etc.
Rechtswissenschaftliches Institut
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EU Code of Conduct
Criteria
1. Benefits are only granted to foreigners or for transactions
with foreigners
2. Benefits are completely isolated from the domestic economy
so that they have no impact on domestic tax basis
3. Benefits are granted regardless of actual business activity
and business substance in the member country granting the
tax benefits
4. Deviation from internationally accepted principles, in
particular from the tax principles set by the OECD
5. Lack of transparency
Ring-
fencing
Rechtswissenschaftliches Institut
24.9.14 Seite 25
European State Aid Prohibition
Legal Basis
Art. 107 Treaty on the functioning of the European Union (TFEU, ex-Art. 87
TFEC)
(1) Save as otherwise provided in the Treaties, any aid granted by a Member State
or through State resources in any form whatsoever which distorts or
threatens to distort competition by favouring certain undertakings or the
production of certain goods shall, in so far as it affects trade between
Member States, be incompatible with the internal market.
Art. 23 Free Trade Agreement between Switzerland and the EU
(1) The following are incompatible with the proper functioning of the Agreement in so
far as they may affect trade between the Community and Switzerland,(…)
iii) any public aid which distorts or threatens to distort competition by favouring
certain undertakings or the production of certain goods.
Rechtswissenschaftliches Institut
24.9.14 Seite 26
Legal uncertainty regarding the European state aid
rules and Code of Conduct 1. Decision of the Commission regarding the Spanish R&D regime 2008
Broad definition of royalty payments, less selective
2. EFTA-decision regarding the Liechtenstein R&D regime 2011
No selective differentiation since all companies may benefit
3. Decision of the Commission regarding Gibraltar 2013
Is already the differentiation between types of income selective?
4. Press release of the Commission regarding Luxembourg R&D 2014
Mobile companies as particular type of company?
5. Preliminary examination of the EU Code of Conduct Group regarding
the UK patent box 2013
Substance requirements regarding R&D activities?
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