The patent box in Switzerland

Companies domiciled in Switzerland now have the opportunity to benefit from tax advantages in connection with the so-called patent box or with taxes on R&D expenses. According to the Federal Council's press release of 14 June 2019, the corresponding law will enter into force on 1 January 2020.

What is at the core of the Swiss patent box: Upon a taxable person's or company's request, the net profit resulting from patents or income from patents, respectively, is taken into account in the ratio of qualifying R&D expenses to total R&D expenses per patent for the calculation of the taxable net profit. This may result in a reduction in income of up to 90%, entailing corresponding tax advantages. In order for patents to be taken into consideration for the box, they must relate to research and development activities (nexus approach) and, in accordance with OECD guidelines, they must be novel, useful and non-obvious.

Additionally, up to 150% of the explicit commercially justified R&D expenses incurred, directly or indirecty via third parites, by a taxable person or company in Switzerland may be deemed deductible. In Switzerland, the competence lies with the cantons, which may grant their approval upon request.

Who is eligible to the patent box: This regulation favours not only large companies, but also the numerous small and medium-sized enterprises in Switzerland (SMEs) operating in research, development and innovation.

Background: On 19 May 2019, Swiss voters endorsed the new Federal Act on Tax Reform (TP17/TRAF). It is a comprehensive tax package designed to promote and safeguard the competitiveness and sustainable employment in Switzerland. It aims at strengthening Switzerland's position as a business location in line with the OECD guidelines. One key element of the new tax regime is the possibility of a patent box (formerly also referred to as licence box) for companies with research and development units (R&D) and in particular also for companies holding patents as industrial property rights (intellectual property). In addition to patents, the patent box also covers so-called "similar rights" (supplementary protection certificates, topography rights, plant varieties, documents protected under the Therapeutic Products Act of 15 December 2000 and namely also foreign rights).

IPrime Rentsch Kaelin Ltd (patent attorneys and attorneys at law) and Balmer-Etienne (trust, audit and taxes) provide companies with specialised and tailor-made advice on the implementation of a Swiss patent box, on strategic questions regarding the promotion of the business location as well as on tax and patent law aspects.

Rudolf A. Rentsch  Dr. iur. M.A. HSG et MSc EE ETH Attorney at Law and Swiss Patent Attorney Chairman of the BoD, Partner +41 44 229 60 60 rudolf.rentsch@iprime.law

Moritz A. Kälin  Dr. sc. nat. ETH, MSc Chem. European and Swiss Patent Attorney Member of the BoD, Partner +41 44 229 60 60 moritz.kaelin@iprime.law

Stefan Wigger MLaw, Certified Tax Expert CAS UZH in International Tax Law Vice Director, Partner Head of Tax Consultancy +41 41 228 11 11 stefan.wigger@balmer-etienne.ch