PLEASE NOTE: THIS ARTICLE WAS ORIGINALLY SUBMITTED BY REVISUISSE PRICE WATERHOUSE, SWITZERLAND

This law requires the Cantons to adopt the provisions of the revised Harmonisation Law in the Cantonal tax laws within 5 years. Otherwise the provisions of the Harmonisation Law will directly be applicable for Cantonal tax purposes as well.

2.1 Relief for dividend income and capital gains on the sale of substantial investments

The rules for the relief for dividend income as well as for capital gains on the sale of substantial investments will be the same as for Federal tax purposes.

Dividend income thus qualifies for a relief from income tax if it derives from an investment of at least 20% in the share capital of the other corporate entity, or if the fair market value of the investment in question is at least CHF 2 million.

The rules concerning capital gains on a sale of substantial investments have been described above (see paragraph 1.2). However, the Cantons are free to adopt the same, similar or no transitional rules for capital gains realised on a sale of substantial investments held prior to January 1, 1997. (see paragraph 1.3)

2.2 Cantonal tax relief for entities performing administrative activities only

Corporate entities performing only administrative activities within Switzerland will be subject to Cantonal income tax as follows:

Dividend income as well as capital gains on the sale of substantial investments will basically be entirely relieved from income tax.

Other income from Swiss sources is subject to income tax at ordinary rates
Other income from foreign sources will enjoy a relief from income tax. The extent of this relief is dependent on the importance of the administrative functions performed in Switzerland. The Cantons will have autonomy in determining the extent of this relief.

No relief from income tax may be claimed for those income items for which treaty benefits are claimed (i.e. mainly claiming a relief from foreign withholding tax under a treaty) and for which the double taxation agreement applicable requires the ordinary taxation of this income in Switzerland.

Corporate entities performing business activities mainly abroad but only ancillary activities within Switzerland, will be subject to the same rules. The extent of the relief from Cantonal income tax on foreign source income will, in this case, be based on the importance of the business activities performed within Switzerland. Again, the Cantons have autonomy in determining the extent of the relief.

Note: such reliefs are not available for Federal tax purposes.

The content of this article is intended to provide a general guideline to the subject matter. Specialist advice should be sought about your specific circumstances.