The author of this comment talks about the benefits of intellectual property registration as an important component of Switzerland's status as an international financial centre.
When evaluating international financial centres, one metric is ease of registering intellectual property (patents, copyright, trademarks and image rights). Registration of IP can add to the attractiveness of IFCs, particularly if the IP is associated with a fast-growing sector such as technology, as at the moment. When centres compete with another for business, as is happening now, anything that puts another tool in the box is worth attention. And in the case of Switzerland, the country’s wealth sector continues to need ways to draw in new business now that bank secrecy is – at least internationally – a dead letter, and at a time of negative official interest rates in Switzerland. The business of registering IP in Switzerland is also the stuff of legend: Albert Einstein famously worked in Bern’s patent office more than a century ago.
To discuss the role of IP in the Swiss wealth management story is Cécile Civiale Vuillier, TEP and head of private client at TrustConsult Trustees SA. Based in Geneva, she is an experienced figure in the Alpine State’s trust and estates planning industry and well known to this news service. The editorial team are pleased to share these views and invite responses. Jump into the debate!
Switzerland is a business-friendly jurisdiction, especially for intellectual property (IP) companies. It offers a strategic location in the centre of Europe combined with a competitive and stable economy, an efficient capital market, and a strong legal system with moderate taxation.
What is commonly called “The Swiss Patent Box” refers to companies domiciled in Switzerland holding patents as property rights (intellectual property). As of 2020, these types of company can benefit from a privileged tax treatment for profits attributable to patents or similar IP rights.
The net profit resulting from patents or income from patents of a Swiss holding is taken into account in the proportion of qualifying R&D expenses to total R&D expenses per patent for the calculation of the taxable net profit. Net profit from domestic and foreign patents is taxed separately with a maximum reduction of 90 per cent, depending on the specific canton.
Switzerland is a member of all the major international IP treaties. These include: the Paris Convention, the Berne Convention, the Madrid Protocol, the Patent Cooperation Treaty and the Hague Agreement.
A Swiss company can therefore register IP rights in a large number of jurisdictions through the centralised registration system of each Convention in a cost-effective manner, without the need to mandate local representatives in each jurisdiction. The treaties enable a Swiss registrant to claim the priority date of a Swiss registration for the registration of IP rights in other countries.
Taxation of a Swiss IP company
A Swiss IP company is generally taxed as a mixed company. This is because its business activity will typically, primarily be related to activities abroad.
The effective Swiss tax rate combining federal, cantonal and communal taxes will be around 8 per cent. The principal requirement is that at least 80 per cent of income and expenses must be foreign-source related. It is possible for a Swiss IP company to achieve a significantly reduced tax rate after deductible expenses (e.g. IP amortisation).
Management and control
It is needless to mention that all of the key decisions regarding IP need to be made by a Swiss company in order to comply with international transfer pricing rules and the OECD Model Tax Convention on Income and Capital. Sufficient substance by management, control and activity are paramount.
To maintain its reputation as a global centre for international trade and finance, the Swiss tax system has managed to attract many major players in the industry to open their European offices in Switzerland. In addition to the prestige offered by the jurisdiction as a location for IP companies, Swiss IP companies offer a number of tax advantages in relation to corporate tax and withholding tax.
Last but not least, possessing one of the world’s strongest and most reliable international banking systems, Switzerland is a very convenient location in central Europe for companies looking for a stable jurisdiction, especially after Brexit.