Since 1 January 2020, many cantons have allowed an additional deduction for research and development expenditure. The cantons enjoy wide discretion in the application of this additional deduction. Depending on the cantonal implementation, this may result in very attractive tax planning options, not only for multinational enterprises but also for SME's.
Which expenditure qualifies for the R&D super-deduction?
As of 1 January 2020, Swiss companies are able to apply for an additional tax deduction on their research and development ("R&D") expenditure. Depending on the canton, this deduction may exceed the ordinary business-related R&D expenditure (so-called "R&D super-deduction") by up to 50%.
Expenditure for scientific research as well as for science-based innovation (e.g. development of new products, procedures, processes, services for the economy and society) both qualify for the R&D super-deduction. The latter will be of particular interest to most enterprises. By definition, science-based innovation requires a certain level of novelty, whereas the "innovative nature" of R&D activities should not be over-emphasized. Activities in connection with the further development or improvement of products, procedures, processes or services may qualify as science-based innovation. This is in line with the core idea of the R&D super-deduction which is to promote Switzerland as an international hub for innovation. Therefore, the R&D super-deduction may only be refused if the R&D activities entail "nothing new" for the Swiss economy and society as a whole.
The qualifying expenses relate to R&D activities in Switzerland and include costs for own activities of Swiss companies as well as for contractual research by Swiss group companies or domestic third parties.
The R&D super-deduction is based on OECD guidelines which ensures its conformity with international tax standards.
Scope of application
In addition to typical R&D activities in the pharmaceutical, medical or nutritional sector, research, development or improvement of applications, products, services, etc. carried out in any other sector will generally qualify as R&D activities. Hence, "sector neutrality" prevails.
How is the R&D super-deduction calculated?
The calculation of qualifying R&D expenses is primarily based on the Swiss company's personnel expenses that are allocable to R&D activities. This ensures a relatively simple calculation of qualifying R&D expenditure as defined by the...