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Blogs - The M&A Perspective

Swiss Corporate Tax Reform - Switzerland will Remain Attractive

27.02.2015 – In reaction to continued international pressure Switzerland is changing tax privileges for holding companies, administrative companies, and mixed companies at the cantonal level as well as the taxation of principal companies and the Swiss Finance Branch structures at the federal level. Switzerland intends to replace these privileges as part of its corporate tax reform III. The government sent a first proposal of this reform into consultation. The consultation process just ended on 31 January 2015 and it is therefore too early to report on its results. However, judging from press coverage, the proposal has overall been received positively.

From the M&A perspective, the taxation of Swiss holdings is of particular interest, as normally the cross-border acquisition of a target company is effectuated by way of a special purpose vehicle (SPV) in the form of a Swiss (holding) company. In many cases, the SPV is not merged with the target company right away (often to avoid a partial indirect liquidation or because the tax authorities deny a debt push-down). Although pursuant to the proposed reform a holding company will become subject to ordinary statutory taxation, the participation exemption on qualifying dividend income and capital gains will remain. As a result, a pure holding company's profits will continue to be taxed marginally or not at all. The cantons will likely also provide for a reduced tax on equity. This means that, even after implementation of the corporate tax reform III as proposed, Switzerland will remain a very attractive holding jurisdiction.