Selected stumbling blocks from tax practice and outlook on the corporate tax reform (SV17 / or STAF)

Case 1: Loss of tax status

Facts

Malix International Trading AG ("MIT") is a Swiss group company of the Malix Group with headquarters abroad. The Group is active in trading with electronic products. MIT is the central purchasing company of the Group and owns numerous trademark rights. As such, it purchases goods for the entire Group and resells them to Group companies. The purchase of goods takes place almost exclusively abroad and sales to foreign Group companies account for around 90% of total sales. In Switzerland MIT employs 150 people. They work in a company-owned property.

MIT has been taxed as a mixed company since its foundation. The taxable domestic quota is 15%.

The balance sheet as at the end of 2019 is as follows. In view of the transition to ordinary taxation following the abolition of the tax status, the hidden reserves have already been determined:

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Issues related to the abolition of the tax status:

• To what extent are the hidden reserves to be taken into account?
• Which balance sheet items are affected by the changeover and how?
• Is the special tax solution or the old law waiver with disclosure of hidden reserves more advantageous?

Case 2: Entry into the patent box

Facts*

Sport Aid GmbH has developed a new type of training device to stabilize and strengthen the knee muscles for long-distance runners and has registered the patent. The device is about to be launched on the market. Annual profits of TCHF 400 each (excluding brand fees and after elimination of the estimated profit from routine functions) are expected over the next five years. The remaining profit of Sport Aid is budgeted at TCHF 600 each for the next five years (total budgeted profit according to ER: TCHF 1,000). Cumulative R&D expenses including additional deductions according to Art. 25a StHG amount to TCHF 500. This amount is not capitalized in the commercial balance sheet. It is to be depreciated for tax purposes within 5 years.

Sport Aid GmbH intends to claim the Patentbox for the result from the sale of the training equipment from January 1, 2020. The reduction for the profit from patents of the canton in which the company is located is 90%.

Question

1. Calculate the tax consequences of entering the Patentbox according to the basic, deferred and realization solution. What advantages and disadvantages do you see in the individual approaches?
2. What tax burden in relation to the net profit according to the income statement before deduction of taxes results from the taxation of the cumulative research and development expenses at box entry?

*Based on case studies and solution approaches by Simon Schlumpf, Cantonal Tax Administration Zug, developed for the NFA specialist group on quality assurance in accordance with Art. 4 para. 1 FiLaV.

Case 3a: Deduction for self-financing: Operating company

Facts

Zendrova AG Zurich is 100% owned by sole shareholder Herbert Hauser, who is based in Kilchberg ZH. It shows the following financial statements as at 31.12.2019:

The yield on 10-year government bonds is 2.0%.

In order to generate interest on equity, the company distributes an annual dividend in the amount of the total net profit.

Zendrova AG had to finance the acquisition of the investment with a bank loan. Thanks to an inheritance, Hauser was able to repay this loan 3 years ago. However, with the introduction of the deduction for self-financing on 1.1.2020, Hauser is now considering increasing its share capital by TCHF 12,000 and using these funds to reduce its shareholder loan. He also plans to withdraw funds not required by the company and to receive correspondingly higher dividends instead of the interest on his shareholder loan.

Question

Calculate the taxable net profit of Zendrova AG Zurich taking into account the deduction for equity financing before and after the refinancing.

How high is the tax burden for Herbert Hauser under the assumption that the resulting reduction in the loan will be re-distributed in the form of dividends?

• Hauser is divorced -> single person tariff; and non-denominational
• Other net income (without Zins AG) TCH 300
• Partial taxation procedure Canton of Zurich new 50

Case 3b: Deduction for self-financing: finance company

Facts

The annual financial statements of Finance GmbH, domiciled in the city of Zurich, for the business period 1.1.-31.12.2021 are as follows:

Yield on ten-year government bonds: 2%.

Interest rate for Group companies after third-party comparison: 3%

Question

Calculate the taxable net profit

• For the profit tax of the canton of Zurich and the city of Opfikon;
• For the direct federal tax.

How high is the tax burden from the profit tax in relation to the net profit according to the income statement and the net profit before deduction of tax expenses?