Introduction to Swiss Tax Law

Transcription

1 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

2 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 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 Seite 2

3 Principal Taxes on the Federal Level Taxes on income Income tax (individuals) Tax on net profit (legal entities) Withholding (Anticipatory) tax Taxes on goods and services Value Added Tax Stamp duties Tobacco tax Alcohol tax Beer tax Mineral oil tax Customs duties Seite 3

4 Principal Taxes on the Cantonal and Communal Level Taxes on income and on net wealth Income and net wealth tax (individuals) Tax on net profit and on capital (legal entities) Withholding tax on certain income of residents and nonresidents Real estate capital gains tax Inheritance and gift tax (in certain cantons) Taxes on goods and services Tax on the transfer of immovable property (in certain cantons) Motor vehicle tax Stamp duties Dog tax Entertainment tax Seite 4

5 Federal Revenue Quelle: Eidg. Finanzverwaltung, Bundesfinanzen in Kürze Rechnung 2011, S Seite 5

6 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 Seite 6

7 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 Seite 7

8 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 Seite 8

9 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 Seite 9

10 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 Seite 10

11 Federal Direct Tax Act Federal Law on the Federal Direct Tax of 14 December 1990 (FDTL) (Bundesgesetz über die direkte Bundessteuer [DBG], SR ), 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 Seite 11

12 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) Seite 12

13 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 Seite 13

14 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) Seite 14

15 Income Tax Rates for Individuals Assumption: single person, without children, taxable income CHF or CHF ; tax year 2012: Taxable Income 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 % Seite 15

16 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 Seite 16

17 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 Seite 17

18 Corporate Tax Rates Assumption: share corporation, taxable profit CHF or CHF ; tax year 2012; rates after tax: Taxable Profit 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 % Seite 18

19 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 Seite 19

20 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 Seite 20

21 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 ) Seite 21

22 Memorandum of Understanding with EU 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. Which international standards? Prohibition of state aid? When will «the regimes in question» be regarded as abolished? Seite 22

23 Consultation on Corporate Tax Reform III 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 safetyequity) 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 Seite 23

24 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 Ringfencing 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 Seite 24

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 Seite 25

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? Seite 26