SSK publishes analysis of the additional deduction for research and development for cantonal and municipal taxes
Summary
In principle, self-employed persons and legal entities domiciled in Switzerland have the possibility of an additional tax deduction if they conduct research and development in Switzerland. The canton must create a corresponding legal basis for this so that this additional deduction is available for cantonal and communal taxes from the tax period 2020 (or later, if necessary). The basis for the calculation of this additional deduction is, on the one hand, the demonstrably incurred personnel expenses for research and development and contract research in Switzerland. The corresponding data/evaluations on research and development or its personnel expenses or contract research would then have to be prepared for fiscal year 2020.
Definition Research and development
The basis for the additional deduction is scientific research and science-based innovation in accordance with Art. 2 FIFG (Federal Act on the Promotion of Research and Innovation):
Scientific research:
According to the OECD Frascati Manual 2015, scientific research includes the following cumulative principles:
- Generation of new knowledge (novel);
- Based on original, non-obvious concepts and hypotheses (creative)
- Uncertainty in relation to the final result (uncertain);
- Following a plan and budgeted (systematically);
- Leading to results that are reproducible (transferable and/or reproducible)
Science-based innovation:
Art. 2 let. b FIFG defines innovation as the development of new products, procedures, processes and services for the economy and society
- through research, in particular application-oriented research and
- by using their results.
Personnel expenses
This deduction is calculated on the basis of personnel expenses and a flat-rate surcharge of 35% for material, investment and depreciation costs, rent and other overheads. According to the analysis of the SSK, the personnel expenses mentioned here are based on the Swiss manual of Audit (Volume "Limited Audit", Zurich 2014, Part IV Section 3.6). Accordingly, this term includes salary and social security expenses, gratuities, long-service awards, bonus programs, and training and continuing education.
Qualifying employees for the personnel expenses for research and development to be considered
The decisive factor is the actual function and direct activity of the employee - not the formal qualification or level of education.
In its analysis, SSK gave the following examples:
Qualifying activities and employees (positive list):
- carry out scientific and technical work for a research and development project (planning and conducting experiments or surveys, building prototypes, etc.)
- plan and manage research and development projects;
- write interim and final reports on research and development projects;
- provide internal services directly for research and development projects (e.g. project-specific IT or library and documentation work)
- provide direct support for financial and human resources management for research and development projects.
However, employees who perform indirect support or auxiliary activities do not qualify as research and development personnel, e.g:
- specific services for research and development provided by central IT departments and libraries
- Services of central finance and human resources departments for research and development projects and research and development personnel;
- the provision of security, cleaning, maintenance, canteen services, etc. to units carrying out research and development;
- in the production process, as well as activities upstream and downstream of it;
- for the monitoring of plants and for quality management;
- as support activities for research and development such as IT infrastructure management;
- for general services within the company from other activities not directly related to research and development, such as purchasing, sales, marketing, accounting, human resources and company management;
- for approval, licensing, certification or type testing.
Contract research
If research and development is carried out within the framework of contract research in Switzerland, 80% of this additional deduction can be taken into account. However, this assumes that the company which carries out contract research does not itself claim this expense for the additional deduction for research and development.
Simplified example
Research and development-related personnel expenses TCHF 1'000
Flat rate surcharge 35%: TCHF 350
Plus contract research in Switzerland
- Only permitted if the contract researcher himself does not claim the
additional deduction TCHF 600 - Permitted quota 80%: TCHF 480
Total basis of calculation: TCHF 1'830
Additional deduction for research and development: TCHF 915
Principle of documentation
Taxpayers must provide evidence of qualifying research and development expenditure. This also applies to contract research for the contracting company.
