Tax Proposal 17 - Part 3: Additional R&D Deductions and Limitation on Relief

In the last part of our series on Tax Proposal 17, we introduced you to the abolition of the provisions for status companies and the introduction of the patent box as two of the measures of the TP17. Today we explain further changes that the proposal brings.

Additional (optional) R&D deductions

‍Research and Development (R&D) is a significant economic sector in Switzerland. As explained in the second post of our series, to remain competitive in this area, the introduction of a mandatory patent box is planned. Additionally, optional R&D deductions should also be possible. These are optional for the cantons. Even under current law, expenses for research and development (as well as other business-related costs) can already be deducted from taxable income. Through the new regulation, further deductions for domestic research and development expenses can be made. However, this additional deduction must not exceed 50% of the eligible research and development expenses.

‍Relief limitation

‍The so-called relief limitation restricts the opportunities that the lawmaker has given to companies with the patent box and additional R&D deductions. Without the relief limitation, it could happen that, after deductions through the patent box and R&D, certain companies would have no taxes to pay at least at the cantonal level or could even show a tax loss that they could offset against profits in later years. Therefore, these deductions through the patent box and R&D are fixed at a maximum of 70%. Thus, at least 30% of the taxable profit that a company has before these deductions is taken for tax calculation. However, the confederation still allows the cantons the possibility of a higher minimum taxation. Depreciations of companies that were taxed as status companies before the TP17 are also included in the relief limitation.

Which further measures are taken with Tax Proposal 17 will be covered in the next part of our series.

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