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The Swiss tax framework after TRAF

The old regimes: mixed companies and principal structures

Until the end of 2019 Swiss corporate tax law offered trading groups a set of cantonal and federal practices that made Switzerland one of the most attractive locations for commodity trading in the world. The Federal Act on the Harmonisation of Direct Taxes of the Cantons and Communes (StHG) allowed the cantons to tax holding companies, domicile companies and mixed companies at reduced rates. A mixed company, whose business was predominantly foreign, paid cantonal and communal tax on its foreign-source income only on a fraction determined by the importance of its Swiss activity. Trading companies whose purchases and sales took place abroad, with the goods never touching Swiss soil, were the typical beneficiaries.1 At federal level, the Federal Tax Administration (ESTV) had a practice on principal companies. A Swiss principal that bore the risks of a group's distribution through foreign commissionaires or low-risk distributors could treat part of its trading profit, as a rule half, as attributable to foreign permanent establishments and therefore not taxable in Switzerland. The practice on the Swiss finance branch permitted group financing at very low effective rates.2

The regimes had become untenable by the early 2010s. The European Union regarded the cantonal privileges as incompatible with the Free Trade Agreement of 1972 and with its code of conduct on business taxation, and the OECD's Forum on Harmful Tax Practices placed them under review. After a long dialogue, Switzerland and the European Union signed a joint statement on 14 October 2014 in which Switzerland undertook to abolish the regimes.3 The first legislative attempt, the Corporate Tax Reform III, was rejected by the people on 12 February 2017. The second attempt was the Federal Act on Tax Reform and AHV Financing of 28 September 2018 (TRAF, in German Steuerreform und AHV-Finanzierung, STAF). It combined the tax measures with additional financing for the old-age and survivors' insurance and was approved by the people on 19 May 2019. It entered into force on 1 January 2020.4

The content of TRAF

TRAF abolished the cantonal holding, domicile and mixed company regimes and the federal practices on principal companies and Swiss finance branches. To compensate, it introduced instruments compatible with OECD standards and left most of the competitive effort to the cantons, which were expected to lower their ordinary rates.5 The patent box at cantonal level relieves profits from patents and comparable rights by up to 90 per cent under the modified nexus approach of the OECD. The additional deduction for research and development permits the cantons to allow up to 150 per cent of qualifying Swiss research and development expenditure. Cantons whose effective rate in the capital exceeds a threshold may grant a notional interest deduction on surplus equity, an option that the federal law reserves to high-tax cantons. The total relief from these instruments may not exceed 70 per cent of taxable profit before the relief.6

On the side of the shareholders, TRAF increased the taxable portion of dividends from qualifying participations held as private assets to 70 per cent at federal level and to at least 50 per cent in the cantons. It restricted the tax-free repayment of capital contribution reserves by listed companies. The cantonal share of federal direct tax revenue was raised from 17 to 21.2 per cent to give the cantons room for rate reductions. The financing element added CHF 2 billion a year to the old-age insurance, mainly through an increase in salary contributions of 0.3 percentage points.7

Instrument Before 2020 Since 1 January 2020 Holding, domicile, mixed Reduced Abolished company cantonal tax Principal company, finance ESTV practice Abolished branch Patent box None Up to 90 % relief R&D deduction None Up to 150 % of costs Overall relief limit None 70 % of profit Dividends, private shareholders Partial taxation 70 % federal, min. 50 % varied cantonal

Notes

  1. StHG, Art. 28 paras 2–5, repealed by the Federal Act of 28 September 2018 on Tax Reform and AHV Financing with effect from 1 January 2020, and Art. 78g para. 1 (transitional rule for legal entities "taxed under Article 28 paragraphs 2–4 of the former law"), text at droit-bilingue.ch, https://www.droit-bilingue.ch/fr-de/6/64/642.14-28-50.html and https://www.droit-bilingue.ch/fr-de/6/64/642.14-78g-138.html. ↩
  2. ESTV, Circular No. 8 (W02-008D) of 18 December 2001, Internationale Steuerausscheidung von Principal-Gesellschaften, https://www.estv.admin.ch/dam/de/sd-web/k8J5f3TyJPN5/dbst-ks-w03-008-de.pdf (allocation of half of the trading profit to foreign permanent establishments; section 7: no new claims from 1 January 2019). On the abolition of the principal company practice and of the Swiss finance branch with TRAF see Akin Gump, Swiss Tax Law Changes (above). ↩
  3. Federal Council, Botschaft zum Unternehmenssteuerreformgesetz III of 5 June 2015, p. 5082 (joint statement on company taxation "am 1. Juli 2014 in Bern paraphiert" and "am 14. Oktober 2014 von Bundesrätin Eveline Widmer-Schlumpf und Vertreterinnen und Vertretern der 28 EU-Mitgliedstaaten in Luxemburg unterzeichnet"), https://swissvotes.ch/vote/611.00/botschaft-de.pdf. ↩
  4. Akin Gump, Swiss Tax Law Changes (above) (referendum of 19 May 2019; entry into force on 1 January 2020 if approved). Swissvotes, vote no. 611.00 of 12 February 2017 (Corporate Tax Reform III rejected, 40.92 per cent in favour, 3 of 26 cantons), https://swissvotes.ch/vote/611.00, and vote no. 627.00 of 19 May 2019 (TRAF approved with 66.38 per cent), https://swissvotes.ch/vote/627.00. Federal Act of 28 September 2018 on Tax Reform and AHV Financing, AS 2019 2395. ↩
  5. Akin Gump, Swiss Tax Law Changes (above). ↩
  6. Akin Gump, Swiss Tax Law Changes (above) (research deduction of up to 50 per cent above actual costs; notional interest deduction in high-tax cantons; overall reduction limited to 70 per cent). StHG, Art. 24a–24b (patent box), Art. 25a (additional research and development deduction of at most 50 per cent), Art. 25abis (deduction on self-financing, only where the combined rate in the cantonal capital is at least 13.5 per cent) and Art. 25b (relief limited to 70 per cent of taxable profit), text at droit-bilingue.ch, https://www.droit-bilingue.ch/fr-de/6/64/642.14-25abis-45.html and https://www.droit-bilingue.ch/fr-de/6/64/642.14-25b-46.html. ↩
  7. Akin Gump, Swiss Tax Law Changes (above) (70 per cent federal and 50 per cent cantonal minimum; cantonal share from 17 to 21.2 per cent; CHF 2 billion; 0.3 per cent salary contribution; restriction on capital contribution reserves for listed companies). ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of August 2025.

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