Introduction to Swiss Tax Law - UZH · 2018. 7. 26. · Rechtswissenschaftliches Institut Introduction to Swiss Tax Law Fall Semester 2014 René Matteotti Professor of Law, Chair

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


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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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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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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Quelle: Eidg. Finanzverwaltung,

Bundesfinanzen in Kürze –

Rechnung 2011, S. 7

Federal Revenue

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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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. “


Consultation on Corporate Tax Reform III

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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.


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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


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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.


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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?

Documents

Introduction to Swiss Tax Law - UZH · 2018. 7. 26. · Rechtswissenschaftliches Institut Introduction to Swiss Tax Law Fall Semester 2014 René Matteotti Professor of Law, Chair