Taxation of innovation: should Switzerland step up its efforts?

Switzerland remains a strong business hub, but the tax landscape is shifting rapidly when it comes to innovation. According to an article in *Le Temps*, new opportunities for tax incentives in research and development – authorised by the OECD from January 2026 – are opening up a window of opportunity that Switzerland is reportedly failing to exploit to the full. Singapore and the United States are reportedly already offering more attractive schemes for R&D activities.

For a technology-based SME, an industrial start-up or a company developing its own software, this is far from an abstract issue. Behind the debates on super-deductions, the patent box or fiscal equalisation lie very concrete decisions: where to base a development team, how to document an innovative project, which canton to choose, and how to factor in the tax burden within a business plan.

R&D is becoming an increasingly contested tax lever

Research and development encompasses the activities through which a company seeks to create, improve or test products, processes, technologies or methods. From a tax perspective, the challenge lies in determining which expenses can reduce taxable profit beyond their ordinary accounting treatment, or entitle the company to a specific incentive.

According to Le Temps, since January 2026 the OECD has opened up new opportunities for ‘Qualified Tax Incentives’ following the United States’ withdrawal from the global minimum tax system for multinationals. These incentives may be granted to companies with ‘substance’ in the relevant jurisdiction, meaning, in particular, employees or production sites. The framework in question focuses specifically on R&D activities carried out within the country, with limits on eligible expenditure.

This concept of ‘substance’ is central to Swiss business leaders. It means that a tax benefit linked to innovation is not merely a matter of holding a patent within an entity. It requires genuine activity: staff, premises, investments, testing, technical documentation and operational organisation. For an SME, this ties in directly with cost accounting, payroll management, internal invoicing and evidence of work carried out.

The legal opinion cited by *Le Temps*, drafted by Robert Danon and Pascal Hinny for SwissHoldings, considers that Switzerland has some room for manoeuvre, but utilises it less extensively than its competitors. In particular, the two professors recommend making better use of tax incentives for R&D in order to enhance Switzerland’s attractiveness as a business location.

Super-deduction and patent box: two tools, two approaches

In Switzerland, two mechanisms are at the centre of the debate. The first is the R&D super-deduction. In principle, this allows a tax deduction in excess of the accounting value of certain research and development expenditure. In other words, an expense already incurred by the company can yield a greater tax benefit, provided it meets the specified conditions.

The second mechanism is the patent box. This is a scheme applicable to income derived from intellectual property rights, typically patents. Its rationale is different: whilst the super-deduction applies to expenditure incurred for innovation, the patent box applies instead to income generated by protected intangible assets.

According to extracts from *Le Temps*, Switzerland currently uses a super-deduction of 50 per cent of R&D costs and a patent box. The former is optional and is reportedly subject to more restrictive conditions than in other countries; the latter is mandatory but is said to have lost some of its appeal. The authors of the cited study propose partially reversing this approach: making the super-deduction mandatory, whilst the patent box would become optional.

For SMEs, this distinction is important. Many companies innovate without immediately having an exploitable patent or clearly identifiable intellectual property revenues. They improve a production process, develop a digital solution, adapt a technology to their market or carry out trials with pilot customers. In such situations, a mechanism based on R&D expenditure may be closer to economic reality than a scheme centred on the future returns from a patent.

However, the practical effect depends on the definition adopted. A company will need to be able to distinguish expenditure genuinely linked to innovation from that relating to day-to-day operations. For a trust company, this involves organising supporting documents, clarifying the time spent by staff, documenting projects and avoiding rough reclassifications at the end of the financial year.

Are the eligible expenses too narrowly defined for innovative companies?

One of the key points of the study reported by *Le Temps* concerns the scope of deductible expenditure. The authors recommend going beyond researchers’ salaries to include, for example, laboratories, testing facilities or expenditure related to artificial intelligence. They also suggest raising the ceiling on deductible expenses, currently limited to 50 per cent of staff costs, with an additional 35 per cent, bringing the total to 67.5 per cent. The article notes that some countries allow up to 200 per cent.

This discussion speaks directly to businesses that are actively innovating. In an industrial SME, R&D is not limited to an engineer’s salary. It may involve prototypes, test benches, specialised machinery, specialist software, external services, data, compliance testing or digital infrastructure. In a services company, innovation may involve developers, business specialists, automation tools or test environments.

If only certain categories are eligible, the tax benefit may be less than the actual effort expended. Conversely, broadening the scope of eligible expenditure would require companies to track their costs more effectively. Managers should therefore consider tax implications right from the start of the project, rather than when finalising the accounts. A well-structured R&D budget, separate cost centres and a clear description of technical objectives become key management tools, not merely tax formalities.

The risk for an SME would be to confuse innovation with mere business renewal. Not all modernisation expenditure necessarily constitutes research and development. Before factoring a tax benefit into planning, it is therefore essential to verify the applicable treatment, cantonal practice and the quality of the available documentation.

The cantons at the heart of the Swiss tax system

Swiss corporate taxation operates on several levels. Direct federal tax sets a common framework, whilst the cantons have some leeway in the application of numerous instruments. This structure is a strength when it allows for local adaptation, but it can also create discrepancies in treatment and clarity for businesses operating across several cantons.

According to Le Temps, improvements could already be made at cantonal level under current law, notably by defining R&D and innovation activities more broadly or by simplifying documentation requirements. The article notes, however, that a reform of the Federal Act on the Harmonisation of Direct Taxes would be necessary to genuinely strengthen support for innovation.

Financial equalisation also complicates the picture. This mechanism aims to mitigate financial disparities between cantons and to support the fulfilment of public tasks. According to the study cited, financial equalisation does not recognise the super-deduction: a canton that offers this to its businesses would be penalised in the equalisation calculation. The authors see this as one of the reasons why 16 cantons could already go further.

For businesses, this cantonal dimension calls for a very practical approach. The same innovative project may not produce the same tax effect depending on the canton, the way in which the authorities interpret the expenditure and the quality of the application submitted. Le Temps specifically mentions Basel-Stadt, Glarus, Uri, Nidwalden and Lucerne among the cantons that are less favourably positioned according to the study, whilst Geneva is said to apply the law very strictly.

An SME considering opening a new site, relocating a development team or restructuring a group must therefore factor innovation taxation into its location analysis. The nominal tax rate is not enough. It is necessary to examine the actual incentives, the certainty of practice, labour costs, access to talent, infrastructure and administrative requirements.

What fiduciaries should anticipate in R&D cases

If Switzerland were to extend its super-deduction, the impact could be significant. According to the two experts quoted by Le Temps, a substantially expanded super-deduction would enable companies carrying out a great deal of R&D to achieve a tax rate of less than 15 per cent, close to the level cited for the United States. This prospect explains why the debate extends beyond the sphere of multinationals.

The article also points out that the authors wish to make these arrangements accessible to all businesses, and not just to the multinationals affected by the 15 per cent global minimum tax envisaged by the OECD. For the Swiss business community, this point is crucial: innovative SMEs do not always have the internal resources of a large corporation to manage complex tax regimes, but they can be highly sensitive to the cash flow generated by tax relief.

In practical terms, a trust company can already help its clients lay the groundwork without promising an uncertain tax benefit. It can identify projects that include an R&D component, set up cost accounts, document the hours and roles of the staff involved, retain contracts for external services, link expenditure to technical objectives and verify consistency between accounts, payroll and tax returns.

VAT must not be overlooked. Investments linked to innovation may involve purchases of equipment, software, services from abroad or collaborations with partners. Depending on the structure of the business, these transactions may affect input tax recovery, the place of supply or the classification of re-invoicing. Here too, the analysis depends on the specific case and should be coordinated with the accounts department.

The debate on Switzerland’s tax attractiveness is therefore not merely a matter of competing tax rates. It relates to the country’s ability to transform its innovation expenditure into a real economic advantage, whilst providing businesses with clear and enforceable rules. For SME managers, the right approach is to treat R&D as a comprehensive management issue: strategy, budget, evidence, taxation and cash flow. Whilst the regulatory framework may evolve, companies that have already structured their documentation will be best placed to benefit from it prudently.