Tax Proposal 17 - Part 6: Optional Reliefs on Capital Tax, Disclosure of Hidden Reserves, Adjustments in Transposition, and Extension of the Lump-Sum Tax Credit

After presenting the key measures of the Tax Proposal 17 in our last series of articles, we are concluding the series today with other measures that the Federal Council does not consider central.

Optional relief on capital tax

‍Even under the current legal situation, cantons can credit profit tax against capital tax. As a result, capital tax is omitted in these cantons if the companies have already paid enough profit tax. The new regulation in the SV17 additionally allows for relief on equity invested in participations and patents.

‍Revelation of hidden reserves

‍So-called hidden reserves arise from under-valuation of assets or over-valuation of liabilities. They are not apparent in a company's balance sheet and serve as reserves during difficult times. If needed, when they are disclosed, they are considered taxable income. Under current law, the revelation of hidden reserves by companies moving abroad is taxed, as the income was generated during their time domestically. With the new Tax Proposal 17, mirroring the disclosure of hidden reserves on migration should not be taxed, since the company was not liable for tax in Switzerland at the time they were generated. Also, hidden reserves from former status companies should be separately taxed in the first five years to prevent over-taxation. The extent of the taxation will be at the discretion of the cantons.

‍Adjustments in transposition

‍A transposition or a "sale to oneself" occurs when a private individual sells shares in a company where they hold at least 50% interest and the proceeds from the sale exceed the nominal value of the transferred shares. This is considered tax evasion. Up to now, at least 5% of a shareholding had to be sold. The new proposal will eliminate this minimum threshold.

‍Expansion of the flat-rate tax credit

‍The legislator considers foreign withholding taxes through the flat-rate tax credit. Under SV17, domestic branches of companies abroad, which are subject to ordinary profit tax, may qualify under certain conditions for the flat-rate tax credit for income from a third country that is burdened with non-refundable withholding taxes.

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