Reforms Continue Apace...
Kitty Miv, Editor
21 November, 2019
With everything going on in the world at the moment, you'd think that wide-ranging tax reform might be the furthest from governments' minds. And yet, and yet.
So this week, we'll be examining the various reform programs currently underway or being initiated in various countries. In Slovenia, for example (because there's not enough to be getting on with elsewhere!), the government recently announced plans to implement sweeping changes to corporate, personal, and capital gains taxes.
Under proposed legislation, a corporate minimum tax of seven percent will be introduced. This is intended to ensure that companies which substantially reduce their tax liabilities by utilizing tax credits and offsets, including loss carryforwards, pay a minimum level of corporate tax.
For personal income tax payers, the amendments increase tax thresholds and reduce the tax rates for the second and third tax brackets by one percent to 26 and 33 percent.
The proposed amendments also include changes to the rate of taxation for capital income, rental income and income from derivatives, which will increase from 25 to 27.5 percent. For capital gains and derivatives income, the tax rate falls depending on the length of time an asset is held. For assets held for between 10 and 15 years the rate is 20 percent, and for those held for between 15 and 20 years the rate is 10 percent. Assets held for more than 20 years are exempt.
In Switzerland, meanwhile, which was the focus of last week's column, the Swiss Federal Council on November 13 approved three ordinances putting in place a series of measures under the Federal Act on Tax Reform and AHV Financing (TRAF) from January 1, 2020.
The TRAF will abolish special arrangements for cantonal status companies and introduce a mandatory patent box regime for all cantons, with additional optional deductions for research and development expenditure. It will set a minimum level of taxation for dividends from qualified participants, introduce additional depreciation measures for companies relocating to Switzerland, and extend the application of the flat-rate tax credit.
The three Ordinances are: the Ordinance on the Reduced Taxation of Profits from Patents and Similar Rights; the Ordinance on the Tax Deduction for Legal Entities' Self-Financing; and the Ordinance on the Recognition of Foreign Withholding Taxes.
The Patent Box Ordinance mainly governs the application of the OECD standard for patent boxes. It also contains further details on the calculation of profits from patents and similar rights.
The Ordinance on the Recognition of Foreign Withholding taxes governs how non-recoverable foreign withholding taxes on dividends, interest, and royalties are taken into account for taxes owed in Switzerland. With the deduction for self-financing, imputed interest on a portion of equity capital may now be deducted from taxable profit.
Then, amid fierce electioneering in the United Kingdom, UK Prime Minister Boris Johnson announced that his party intends to cancel a planned cut to the corporate tax rate, which was scheduled for April 2020.
Speaking before the Confederation of British Industry's annual conference (which was also addressed by Labour leader Jeremy Corbyn and the leader of the Liberal Democrats, Jo Swinson), Johnson said the rate cut, from 19 percent to 17 percent, would come with a GBP6bn-a-year price tag. He said that his government, if successful in the election, would instead allocate the funding to the National Health Service, in an attempt to avert a winter crisis.
So, still all go in tax terms, despite the degree of political paralysis imposed by Brexit! Until next week...
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