Tax reform has eased burden on corporations
When the Federal Act on Tax Reform and AHV Financing (TRAF) took effect in 2020, it marked the start of a new era of tax competition between cantons. With the elimination of privileged taxation of companies with a special status, cantons are now competing via lower ordinary tax rates. However, the purpose of the reformed tax law was to promote innovation as well. All cantons were required to introduce privileged taxation of profits from patents, and they are allowed to grant an additional deduction for research and development. In addition, an interest deduction for self-financing may be granted under certain conditions. However, the tax relief provided by these three tax instruments as well as any write-off on hidden reserves due to TRAF transitional measures may not total more than 70% (relief limit), meaning that each company must pay tax on at least 30% of its taxable profit before special regulations are applied.
In order to a remain attractive in the tax competition after implementing the TRAF, most cantons have cut their rates for ordinary corporate taxes in recent years. Since numerous cantons with higher taxes, like Bern and Zurich, take special advantage of the scope afforded by these tax instruments, the variation is considerably smaller when it comes to the minimum corporate income taxes than it is with ordinary corporate income tax rates.