On 10 April 2019, the Federal Council sent the ordinances on the implementation of the STAF (tax reform and AHV financing) to the consultation process.

The consultation documents include the following regulations implementing the STAF:

(a) Regulation on the tax deduction on self-financing of legal persons

The STAF allows those cantons whose cantonal capital has an effective federal, cantonal and municipal tax burden of at least 18.03% to introduce a deduction for self-financing (NID). Imputed interest on the so-called collateral equity is deductible. The regulation is intended to regulate the details of the NID. It provides in particular for the following:

  • The collateral equity is calculated as the difference between the total equity and the so-called core equity, which is determined on the basis of capital adequacy rates. In principle, the capital adequacy rates are the minimum equity derived from KS ESTV No. 6, Hidden Equity, increased by 25 percentage points. Average values are used for costing (opening and closing balance of the tax period).
  • NID is excluded for certain assets in accordance with Art. 25abis para. 3 nStHG, which is why an equity capital backing rate of 100% is provided in this respect.
  • The portion of the guarantee equity attributable to all types of receivables from related parties is the proportion of the average income tax value of these receivables to the average income tax value of the total assets. The average income tax values of the assets are weighted with the difference between 100 percent and the equity backing rates. With regard to all types of receivables from related parties, an interest rate in line with that of third parties is deductible, whereas with regard to other assets, the yield rate of ten-year Federal bonds is deductible.

b) Ordinance on the crediting of foreign withholding taxes

The STAF is intended to allow permanent establishments to apply for the crediting of non-recoverable foreign withholding taxes, which requires an amendment to the (previous) Ordinance on the Lump Sum Tax Credit. The Federal Council is taking this as an opportunity to make further adjustments to the tax credit regulations. In particular, the draft provides for the following:

  • The distribution of the tax credit amount between the Confederation and the cantons/communities should no longer be based on a flat rate, but rather effectively.
  • In the event of partial taxation, there is no reduction of the tax credit amount in accordance with federal court rulings.
  • Clarifications in the calculation of the maximum amount for tax credit in relation to deductions for expenses (interest on debts and other expenses). It also regulates the calculation of the maximum amount in relation to privileged taxed income under the patent box and in relation to additional deductions for R&D and NID.
  • Swiss permanent establishments of foreign companies may claim the tax credit provided that (1) between the source state and Switzerland and (2) between the source state and the state of residence of the company and (3) between Switzerland and the state of residence of the company, a DTA exists in each case. If the two DTAs with the source State are based on different tax rates for non-recoverable taxes, only the lower of the two amounts can be claimed.

c) FDF Regulation 1 on the crediting of foreign withholding taxes

The Regulation is essentially editorially adapted to the amendments to the main Regulation as regards the more concrete calculation of the maximum amount.

Provided that the STAF is adopted in the referendum of 19 May 2019, the Regulations shall enter into force together with the Act on 1 January 2020. If the proposal is rejected, the drafts become irrelevant.

The consultation period lasts until 17 July 2019 and the consultation documents are available here.

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Tax topics covered in this post:
Income Tax
Profit Tax
Withholding Tax