Swiss corporate tax reform – patent boxes no panacea
The European Union (EU) doesn’t like the special tax deals that are offered to companies to entice them to set up in Switzerland. So the Swiss government is working hard to find a replacement. One element of their new plan is to offer patent boxes. A recent study by economists from BAK in Basel shows however that patent boxes are no panacea.
Patent boxes allow governments to charge lower taxes on profits earned from patented products. The idea is not new and is currently offered in Ireland, France, Belgium, Hungary, Luxembourg, Netherlands, Spain and the United Kingdom. Unlike other forms of corporate tax discrimination the EU has so far tolerated patent boxes.
The BAK Basel study suggests that patent boxes would have little impact on the amount of tax paid in many Swiss cantons. BAK Basel ran a simulation for 15 cantons based on 2015 corporate tax rates and found that patent boxes would have a limited impact on taxes paid in Lucerne, Nidwalden and Obwalden, all cantons with low corporate tax rates. Patent boxes would however reduce the corpoarte tax burden in Basel-Stadt and Bern by around half depending on the mix of business and the percentage of profits coming from patented products.
In addition, many cantons plan to reduce standard corporate tax rates and this would reduce the benefit of using patent boxes. Only Schwyz increased its tax rate in 2015.
Ongoing discussions with the Organisation for Economic Co-operation and Development (OECD) around the extent to which service companies can use patent boxes and what intellectual property can be included will influence the number of companies that qualify and also have an impact.
