Switzerland: Big Data And Tax – Domestic And International Taxation Of Data Driven Business

Angelica Maria Schwarz¹

Summary and conclusions

The term "big data" has been in use since the early 1990s. Thus, big data is not something that is completely new. What has changed within the last three decades, however, is the development of technology that allows higher volumes of data to be processed in a shorter time. Data-driven business models have become increasingly important in order to maintain critical competitive advantages and market shares. True to the motto "knowledge is power", the aim today is to gather more information, which will provide ready-to-use insights for business decisions.

For the legal environment, the challenge is to keep up with the technological developments and the digital transformation. The following analysis shows that Switzerland is not only an attractive location for innovation, but also offers an interesting tax and legal framework that allows data-driven corporations to conduct their business under favourable conditions. Especially the patent box and the R&D super-deduction that were implemented in the last tax reform, have shown that Switzerland is not too late in entering the digital age and providing for sustainable tax models that are particularly attractive to data-driven corporations.

I. Introduction and legal background

An introduction to the legal background applicable to data-related transactions and business models is presented as a starting point for analysing domestic and international taxation of data-driven business from a Swiss law perspective.

1.  Definition of(big) data

In Swiss law, there is no general or consistent definition of the term "data". Instead, different definitions apply depending on the field of law and the protective purpose of the respective norm. For example, Swiss data protection law defines (personal) data as, "all information relating to an identified or identifiable person".² From a Swiss criminal law perspective, the term "data" generally refers to, "all information in the form of letters, numbers, signs, drawings, etc., which is communicated, processed or stored for further use".³ In a criminal law context, the term "data" is, therefore, broader than according to data protection regulations as it is not restricted to personal data only. There is, however, one important similarity: both terms may contain (items of) information. ⁴

In Swiss tax law there is no definition of the term "data" at all. For the purpose of this report and from the author's point of view, it seems appropriate to refer to the terminology provided by the International Organization for Standardization (ISO). According to this definition, the term "data" includes the "reinterpretable representation of information in a formalized manner suitable for communication, interpretation or processing". As such, data can be processed by humans or by automatic means.⁵

2. Tangible vs. intangible property

As described above, the term data may contain (items of) information which can be translated into a form that is efficient for processing. It may seem obvious that the nature of digitally held information is not physical. However, it needs to be considered that digitally held information comes along with a data carrier (for example, a server, USB stick, hard drive, etc.), which, in turn, is a physical object. Therefore, the question arises whether this interaction between tangible and intangible objects may have an impact on the qualification of data as intangible property.

From a Swiss tax perspective, determination of taxable factors is generally based on financial statements. Swiss accounting law, however, does not provide any rules on how an asset must be treated if it contains physical and non-physical elements. It may make sense to have a look at the provisions as provided by the Internationale Financial Reporting Standards (IFRS) as an inspiration how of how the above questions may be answered.⁶ According to the International Accounting Standards (IAS) 38.04, some intangible assets may be contained in or on a physical substance such as a compact disc, legal documentation or film. If an asset incorporates tangible and intangible elements, it is the entity's responsibility to consider and determine which of the elements is more significant. For example, computer software for a computer-controlled machine tool that cannot operate without that specific software is an integral part of the related hardware, and is treated as property, plant and equipment. The same applies to the operating system of a computer. When software is not an integral part of the related hardware, computer software is treated as an intangible asset.

The above statements can also be applied to digital data, as digital data can only be made perceptible (at least for humans) by using a physical substance such as a data carrier. Thus, the important question is what criteria need to be considered when assessing which element is more significant. According to the view represented here, if the data carrier and the data stored on it should be treated as one single asset, the function of the physical subject may become a decisive element while conducting this kind of an assessment. If, for example, the function of the data carrier is solely limited to carrying or storing digital "data", it does not seem appropriate to consider the intangible element as less significant. This may even apply in the context of big data where the data carriers themselves are often valuable as they are technically designed specifically in order to handle big data volumes.7 Especially when data is to be considered as strategic asset on the same scale as resources, it appears justified to also recognize its independent character, value and functions.8 In the context of big data, therefore, qualification as an intangible asset might often seem more appropriate from an overall perspective.

3. Rights to data

In Swiss doctrine, there is a lively discussion about the question whether and in what form a property right in data may be established. In general, the distinction between personal and technical data is made. This kind of a distinction is crucial, since Swiss data protection law applies to personal data only, whereas technical data does not fall within that scope. The distinction, however, is not always easy to draw, since the answer to the question whether data can be assigned to at least one identifiable person varies depending on the context. For example, information that is recorded by a car may be attributable to a specific person if such data is combined with localization data. In this context, it is to be noted that due to the technical possibilities that are constantly growing, more and more personal references can be made from data that was originally anonymous.⁹

3.1. Personal data

Swiss data protection law does not provide for any property rights to personal data. As a consequence, no such right can be transferred to a third party since there is not a comprehensive right to one's "own" data.¹⁰ Nevertheless, for individuals whose personal data is being processed, data protection regulations provide a legal position that is at least quite comparable to a property right. For example, companies that process personal data are generally only allowed to do so if the individual in question agrees to that.¹¹ Further, data protection law may convey a right to information that allows the individuals to request copies of their processed personal data.¹²

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Footnotes

1 Attorney-at-law at Bär & Karrer AG. Her practice focuses on all aspects of national and international corporate tax law and tax planning for Swiss and foreign private clients. She regularly publishes on tax matters with a special focus on topics dealing with data, digitalization, innovation and technology.

2 Art. 3 lit. a of the Federal Act on Data Protection (FADP) (SR 235.1).

3 Weissenberger Philippe, in: Niggli/Wiprächtiger (eds.), Basler Kommentar Strafrecht, art. 143 StGB n. 6.

4 Schwarz Angelica Maria, Die handels- und steuerrechtliche Behandlung von Daten, Unter besonderer Berücksichtigung von verrechnungspreislichen Aspekten im internationalen Konzernverhältnis, p. 7 et seqq. (hereinafter «Die handels- und steuerrechtliche Behandlung von Daten»).

5 ISO/IEC 2382:2015.

6 The IFRS can, of course, only be used as an aid for interpretation if such provisions are in accordance with the systematical framework of Swiss accounting law (cf. Schwarz, Die handels- und steuerrechtliche Behandlung von Daten, p. 69 et seqq.).

7 Schwarz, Die handels- und steuerrechtliche Behandlung von Daten, p. 128 et seqq. with further references.

8 For the term «data assets» cf. Schwarz Angelica Maria, Daten bilanzieren?, in: Recht relevant für Verwaltungsräte, 5/2021 (hereinafter «Daten bilanzieren?»).

9 Schmid Alain/Schmidt Kirsten Johanna/Zech Herbert, Rechte an Daten – zum Stand der Diskussion, in: sic! 11/2018, p. 2 et seq.

10 Thouvenin Florent, Wem gehören meine Daten? Zu Sinn und Nutzen einer Erweiterung des Eigentumsbegriffs, in: SJZ 113/2017, p. 26.

11 Art. 13 para. 1 FADP.

12 Art. 8 para 1 FADP; Thouvenin, p. 26 et seq.

Originally published by International Fiscal Association 2022 Berlin Congress

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