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The Future Should Bring Tax Breaks for Start-Ups

In June 2017 the National Assembly adopted a motion regarding tax breaks for start-ups. On 24 September 2018 it was also approved by the Council of States. Both the Federal Council and a minority in the Council of States unsuccessfully recommended dismissing the motion due to the fiscal discrimination of taxpayers. Now the Federal Council has two years to work out a solution.

In April 2017 the National Assembly’s Economic Affairs and Taxation Committee (NA-EATC) filed a motion to task the Federal Council with working out an attractive and internationally competitive solution for the taxation of start-ups, including shareholdings of their employees. After, in June 2017,  the motion had been adopted by the National Council, on 24 September 2018 it was brought before the Council of States.

According to the Economic Affairs Committee, action is needed in this case because existing legislation is geared up rather for listed concerns than for young small companies. If such companies issued employee shares, they could agree with cantonal tax authorities a formula value to be regarded as fair market value. In individual cases, however, it would have to be negotiated with the authorities, so there would be no legal certainty. Furthermore, the Committee has criticised the fact that full income tax would have to be paid if a sale were made the proceeds from which would exceed the formula value. And this even if the company had not yielded any profit yet.

A minority in the Council of States has dismissed the motion arguing that also the forthcoming tax bill 17 will see some tax breaks for start-ups. Besides, fiscal jurisdiction lies with cantons, which have ample opportunities to offer tax breaks to young companies. As far as employees shares are concerned, it has been said that they are also a sort of employee shareholdings and, as before, they have to be valued for each company separately. However, the motion has also been dismissed by the Federal Council. Ueli Maurer believes that the motion has violated the neutrality of tax law because start-ups would be privileged. As they receive wages instead of shareholdings, the employed would be treated differently. Exempting employee shareholdings from income tax in the future could not be reconciled with the constitutionally established taxation. Moreover, for tax reasons, the motion would cause start-ups to be more willing to issue employee shares than to pay wages. Besides, it is hard to define up to what stage a company should be classified as a start-up.

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