Tax-exempt legal entities for profit and supplementary taxes in Switzerland - A legal comparison

The article deals with the tax exemption of legal entities from profit and supplementary taxes in Switzerland and compares the relevant regulations.

In Switzerland, all legal entities are generally subject to federal, cantonal and municipal taxes on profits, unless they meet certain criteria for tax exemption. These criteria are set out in Art. 56 DBG and Art. 23 StHG and include the state and its institutions, legal entities with a charitable or public purpose, occupational pension and social insurance institutions and newly established companies.

The introduction of national and international supplementary taxes ("Pillar Two") has led to new regulations, some of which conflict with the existing provisions of Art. 56 DBG and Art. 23 StHG. The supplementary taxes are based on the GloBE model regulations ("MR"), which also contain provisions on tax exemption. They include government entities, international organizations, non-profit organizations and certain investment vehicles.

The article identifies several discrepancies between the two types of taxes (profit taxes and supplementary taxes) that can lead to the exemption from profit taxes being undermined by supplementary taxes. These include non-profit group parent companies, cantonal banks incorporated as public-law institutions, health insurance companies organized under private law, collective investment schemes with direct real estate holdings and exclusively tax-exempt investors (occupational pension schemes, social insurance schemes) and newly established companies (insofar as they are subject to Pillar Two).

The author derives three recommendations from the legal comparison: Firstly, state entities with commercial activities (e.g. cantonal banks) should be excluded from tax exemption. This demand has been made for some time independently of Pillar Two. Secondly, the cantonal tax administrations should be recommended to qualify social insurance companies organized under private law (e.g. health insurance companies) as charitable organizations within the meaning of Art. 1.5.1 lit. c MR in order to ensure consistent treatment with profit tax law. Thirdly, the cantons should develop new instruments to promote the establishment of companies in Switzerland.