USR III - Interest-adjusted profit tax

During the last round of negotiations on USR III, it was decided that companies will be allowed to deduct notional interest on surplus equity capital in the future. Learn more about the so-called interest-adjusted profit tax in our article.

Substitute Privileges

As a result of USR III, many companies will lose their tax privileges. To prevent them from relocating, new privileges are being introduced at the same time, such as the privileged taxation of revenues from intellectual property rights (so-called patent box) and by making research expenses deductable above the actual costs. Furthermore, favorable conditions shall also apply for the disclosure of hidden reserves.

Interest-Adjusted Profit Tax

Since holding and financing companies hardly benefit from the aforementioned substitute privileges, the National Council was able to enforce the introduction of an interest-adjusted profit tax. This allows companies to deduct notional interest on surplus equity capital. Due to the related tax revenue losses, the Council of States initially resisted but then agreed under the condition that the concerned cantons must tax dividends on participations over 10% at least 60%.

Punishment of Saving

As a rule, the so-called risk-free interest rate (yield of 10-year federal bonds) is credited as interest expense on the surplus equity capital, while the returns generated beyond that remain taxable. In principle, it would even be conceivable to grant the interest deduction on the entire equity capital. The capital income has already been taxed once. Thus, taxing the returns from this income can be seen as a punishment for saving – this is the argument of the proponents. However, granting a deduction on the full equity might be too costly for the fiscal authorities at the moment.