In recent years, the development of
international tax landscape has accelerated its pace considerably and
underwent important changes influenced by certain national ones
Developments such as the US tax reform or multilateral measures aimed at
shared between countries in coordinating certain projects.
One of the main processes that corporate taxpayers focus on is
BEPS Action Plan of the OECD, implementation started in 2019
and has not yet been completed (e.g. pillar two and global minimum)
Taxation). Part of the effort to implement the BEPS Action Plan
was coordinated by the EU members through the adaptation of
their Anti-Tax Avoidance Policy (ATAD).
The purpose of this article is to analyze the effects of some of the
Measures taken by the OECD for the BEPS project and by the EU for
your ATAD on corporate taxation in Switzerland. The country's tax
The authorities recently put a milestone in corporate tax reform into effect
along with a number of other tax reforms, some of which are ongoing
Pending. Although not all Swiss tax reforms have their origin exclusively
From BEPS or ATAD, the influence of BEPS and ATAD was significant.
BEPS and ATAD
BEPS Action Plan of the OECD
The BEPS action plan adopted by the OECD consists of 15 measures
Points three of which are related to transfer pricing (TP). The focus of
This article addresses the action items underlined below:
- Action 1: Tax challenges due to digitization;
- Action 2: Neutralize the effects of hybrid mismatches;
- Action 3: Controlled Foreign Company;
- Measure 4: Limitation of interest deductions;
- Action 5: Harmful Tax Practices (Minimum Standard);
- Measure 6: Prevention of abuse of tax treaties (minimum standard);
- Action 7: Status of the permanent establishment;
- Action 8-10: Transfer Pricing;
- Action 11: BEPS data analysis;
- Action 12: Mandatory Disclosure Rules;
- Measure 13: Country reporting (minimum standard);
- Action 14: Consensual procedure (minimum standard); and
- Action 15: Multilateral Instrument
EU tax avoidance directive
The purpose of the ATAD is to achieve a harmonized and coordinated one
EU Member States' approach to implementing some of the
Recommendations under the OECD's BEPS project on how to approach profit
Relocation to low-tax or non-tax areas in the community more effectively
EU market. The provisions do not apply to EEA members
Conditions.
ATAD provides a minimum of harmonization rules for
Measures to avoid taxes in five different areas, two of which
not be part of the BEPS action plan. Most of the new regulations
came into force in 2019. ATAD grants EU member states certain
Flexibility in transposing the directive into national law.
Effects on the Swiss tax landscape
Based on the above introductions, the focus of the analysis is on the following aspects:
- BEPS: Rules for Controlled Foreign Companies (CFC), Harmful Tax Practices, Preventing Abuse of Tax Treaties
- ATAD: CFC rules
Action 3 / ATAD: Controlled foreign company rules
Features of the CFC legislation
Switzerland has not introduced any CFC legislation, and so on
So far, this has no plans for Swiss-based subsidiaries of foreign parent companies
Companies can be indirectly influenced by EU CFC legislation
Parent company jurisdictions due to attractive tax rates
and corporate income tax legislation in Switzerland. Has CFC legislation
existed in many countries for many years (e.g. Germany,
France, USA).
The 2015 BEPS Action 3 report elaborated recommended approaches for
the development of CFC rules to ensure taxation of certain
Income categories of multinational corporations (MNEs) in the
Parent company jurisdiction and offshore incentives or
similar privileged structures without taxation or taking into account a
long-term tax deferral. Therefore, CFC rules have the purpose of
Reducing the incentive to shift profits to low or non-tax areas.
Jurisdictions use a variety of different criteria to determine
the term "controlled foreign company" which denotes the
Applicability of CFC tax rules:
- Voting rights or shareholder value of resident taxpayers;
- Operations in a non- or low-tax jurisdiction;
- Quality of the income generated by CFC (e.g. only passive income like
Interest, rental income, dividends, royalties or capital
Profits) and; - The application of essential activity tests.
Switzerland was regularly considered by different countries
Low tax jurisdiction into which profitable business had been relocated. As
As a result, particularly favorable tax regulations have been abolished with immediate effect
January 1, 2020.
At the same time, most of the Swiss cantons decided to reduce the number of companies
Income taxes for all corporation taxpayers who are to be incentivized
Existing and new companies doing business outside of Switzerland.
The new effective corporate tax rates are in the range of
around 12% to 20% depending on the canton of tax residence with taxes
Tax rates below 15% are generally more exposed to CFC taxation than higher rates
Prices. Apart from the CFC laws, it should also be noted that
There is a plan by the OECD to introduce minimum taxation
Company through the Global Anti-Base Erosion Proposal (GloBE) under
Pillar two.
ATAD should lead to a common and harmonized application of
BEPS Action 3 of the EU Member States. The following special aspects of ATAD
(Articles 7 and 8) can be highlighted:
- CFC means direct or indirect participation of more than 50%;
- Low CFC taxation: the tax rate is less than 50% of the parent company's tax rate.
- CFC does not carry out any significant economic activity; and
- Certain tax liability, mostly passive, low taxed
Income from a foreign CFC, in particular (i) interest, (ii) licenses
Fees, (iii) dividends, capital gains on stocks, (iv) income from
Finance leasing, (v) income from banking and insurance activities (vi)
Billing Company Revenue.
It should be noted that the EU member states can decide against this
implement the content-related business test in their national law
for CFCs in non-EU / EEA countries.
Possible protective measures for Swiss tax legislation
There are several ways that a multinational company can mitigate the effects of CFCs
Legislation of the jurisdiction of the parent company on a Swiss basis
Subsidiary company. The calculation of the corporation tax burden of the Swiss
Subsidiary includes direct federal tax as well as cantonal and communal
direct taxes.
The Swiss Federal Tax Act does not contain any
specific provisions that could help multinational companies reduce their CFC risks,
The multinationals should carefully examine the specific tax situation of the subsidiary
and aim to reduce CFC risks on the basis of cantonal tax laws.
With regard to cantonal and communal direct taxes in
There are three different types of CFC cantons in Switzerland
Purposes:
- High tax cantons (“high” tax rate, including direct federal tax);
- Low tax cantons only with fixed tax rates; and
- Low tax cantons with specific rules for CFCs and flexible tax rates.
The definition of a high tax canton depends on the tax rules
the country of the parent company, d. H. the Swiss income tax rate can
However, CFC taxation could be high enough to be out of scope
triggered in cases where the tax base is calculated in less favorable
the country of the parent company that results in a lower effective tax rate
for CFC purposes. In addition, it must be assessed whether the net equity
Taxes are also relevant for the tax comparison. For high capitalized
This can have a significant impact on companies.
There are some low-tax cantons that have anticipated the CFC problem
Provide a correction mechanism that applies higher tax rates
automatically or on request if the country of residence of
The parent company treats all or part of the Swiss income as CFC income.
Examples:
- Lucerne: Increase in the tax rate to the required minimum tax rate in a CFC case;
- Zug: The tax rate can be increased in special cases in connection with international relations; and
- Thurgau: The cantonal tax authorities can apply a higher tax rate
in cases where a company of an international group is exposed to risk
abroad subject to CFC legislation.
Cantons and their tax authorities that take foreign CFC regulations into account
Account for determining the applicable tax rate are in pretty much
challenging situation. Practice will show to what extent such rules
effectively prevent CFCs from being taxed abroad and how they can be applied in one country
legally uniform and practicable way.
Action 5: Harmful Tax Practices
The OECD published a report on the 2020 OECD Forum Reviews on
Harmful Tax Practices Regarding Tax Benefits. Switzerland
It was found to meet the BEPS 5 minimum standard due to its requirements
Abolition of the special tax regulations on January 1, 2020.
At the same time, Swiss tax legislation allows the cantons to do so
Introduction of a patent box and research and development (R&D)
Super deductions, all in accordance with the minimum standard defined below
BEPS Action Plan 5 (including the Nexus approach). In addition, cantons
Application of a minimum corporate income tax rate (cantonal or communal from at
at least 13.5%) can introduce a notional deduction on excess equity
legally defined, which gives preference to large capitalized companies. Only the
The Canton of Zurich has introduced such a notional interest deduction
Equity due to its high tax rates. The new instruments are in
Line with the standard test for essential activities.
An important side effect of the minimum standard regarding
Tax relief schemes are the introduction of spontaneous exchanges
of information on tax rulings, including exchange of tax rulings
XML schema and user manual. The exchange of tax rulings with certainty
Cross-border tax matters were introduced in Switzerland in 2018
The multinational corporations have an adverse, non-tax effect on the increasing risk of
Passing on sensitive information to competitors.
Measure 6: Prevent Abuse of Tax Treaties
Bilateral double taxation agreements are intended to prevent this
international double taxation and play a very important role in
Connection with cross-border business activities. The respective network
of double taxation treaties has also led to contract abuse and
so-called "contract shopping" agreements. Contract shopping usually
denotes a person's intention to indirectly access the benefits of a
Tax treaty between two non-resident jurisdictions
these jurisdictions.
The 2017 OECD Model Tax Agreement contains the following preamble (The Express Statement):
Intent to conclude an agreement to eliminate the double
Taxation in relation to taxes on income and capital without creation
Opportunities for non-taxation or tax reduction through tax evasion
or avoidance (also through contractually agreed purchasing agreements)
Obtaining facilities in this Convention for indirect benefit
of residents of third countries).
According to Action 6 Minimum Standard, the main purpose test
(PPT) are introduced either alone or in double taxation treaties
along with a detailed version of the performance limitation clause
(PRAISE). A third version would be a detailed LOB rule along with Domestic
Conduit agreements that are not covered in tax treaties.
When it signed, Switzerland opted for the minimum standard of Action 6
the multilateral instrument (MLI) in 2019. It has already been changed
several double taxation agreements to implement the PPT accordingly. in the
Cases where there is a double taxation treaty (DTT) with a PPT provision
applicable, the PPT replaces the applicability of domestic Switzerland
Anti-Contract Abuse Act. It seems that the
The Anti-Contract Abuse Act is subject to increasingly restricted applicability
and is therefore likely to be abolished soon.
The question arises of the extent to which the PPT is being implemented
in double taxation has a significant impact on the international
Structures in which Swiss companies are involved. To this day it is still premature
To draw final conclusions, although it can be stated that the PPT is
largely seen as in line with longstanding practice of
Switzerland in connection with contract abuse.
Summary
BEPS and ATAD have had and continue to have a significant impact on Swiss taxation, particularly with regard to:
- Swiss corporation tax and social security law (TRAF):
The abolition of special cantonal tax regulations, along with other special ones
Tax regulations (finance department, main company); - Optional introduction of the patent box, R&D super deduction,
fictitious interest deduction at cantonal level and reduction of
Corporate tax rates for all legal entities; - Provisions to adjust (increase) the corporate tax rate in
some cantons to prevent measures from existing and new CFC laws; - Spontaneous exchange of information: disclosure of tax rulings dealing with certain cross-border agreements; and
- Replace tax avoidance rules introduced in bilateral DTTs
the Swiss national anti-contract abuse law with a main purpose test.
Click here to read the Special Focus Guide 2021 Switzerland
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Daniel U Lehmann |
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Senior Counsel Daniel U Lehmann is Senior Counsel at Bär & Karrer. He joined the company in 1999 before becoming a partner in 2001. Daniel has extensive experience in corporate taxation, particularly in Daniel holds a doctorate in law from the University of St. |
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Anke Stumm |
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Associate Anke Stumm is an associate at Bär & Karrer. She has before Anke focuses on all aspects of national and international companies Anke has a bachelor's and master's degree in law and economics from the University of St. Gallen. |
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