Taxation of innovation: can Switzerland catch up?

Switzerland remains a country valued for its stability, its predictable legal framework and its network of innovative businesses. However, on one issue that has become central to international competition – tax incentives for research and development – it is reportedly not taking full advantage of the new scope for manoeuvre provided by the OECD. According to an article in *Le Temps*, Singapore and the United States now offer more attractive schemes for R&D activities.

For a Swiss SME, the issue may seem to be the preserve of multinationals. It is not. As soon as a company develops a product, improves a process, employs engineers, carries out tests or protects a technology, the tax treatment of innovation influences the real cost of its projects. It can influence the decision to invest in Switzerland, to recruit staff, to document a development project or to carry out certain work in another country.

Tax competition is shifting towards innovation expenditure

For a long time, the tax attractiveness of companies was often reduced to the rate of corporation tax. This view is now too narrow. In the innovation economy, the issue also centres on how a country treats expenditure incurred even before a profit is realised: developers’ salaries, trials, prototypes, software, test infrastructure, the use of artificial intelligence or laboratory work.

The mechanism at the heart of the debate is the R&D super-deduction. In principle, this involves allowing a company to claim a tax deduction in excess of the actual accounting cost incurred for certain research and development expenditure. The aim is to reduce the net cost of innovation and to encourage companies to carry out this work within the country in question. For a tax adviser, this means one very practical thing: the classification and documentation of expenditure become just as important as the amount of the invoice.

According to Le Temps, since January 2026 the OECD has authorised new tax incentives, known as Qualified Tax Incentives, for companies with a genuine presence in the country, for example through employees or production sites. The framework mentioned in the article focuses in particular on locally carried out R&D activities, with certain limits on the costs that can be taken into account.

This development is reshaping the debate for Swiss companies. Governments are no longer content merely to offer a competitive nominal tax rate: they are seeking to attract high value-added functions. However, these functions often require skilled personnel, substantial investment, long-term planning and strict management of tax risks.

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

Switzerland already has tax instruments linked to innovation. According to extracts from *Le Temps*, two tools are currently in use: the 50 per cent super-deduction on R&D costs and the patent box, which allows certain income from intellectual property to be exempt from tax. The two mechanisms do not pursue exactly the same objective.

The super-deduction applies at the time the expenditure is incurred. It supports development efforts when a company incurs costs to create or improve a technology, product or process. For an SME, this is often the most challenging phase: cash flow is under pressure, sales are not yet guaranteed, and teams must cope with a workload that does not immediately translate into turnover.

The patent box, on the other hand, comes into play on the revenue side. It targets profits derived from intellectual property rights. In practice, it requires the ability to correctly link revenue to eligible intangible assets. This entails robust cost accounting, project traceability and a detailed understanding of the links between the technology developed, the protected rights and commercial revenue.

According to Professors Robert Danon and Pascal Hinny, quoted by Le Temps, Switzerland has, however, placed greater emphasis on the patent box, whilst at international level the super-deduction and the R&D tax credit play a more central role. Their analysis also highlights that the Swiss super-deduction is optional and subject to conditions considered more restrictive than in other countries, whilst the patent box is mandatory but is said to have lost some of its appeal.

For SMEs, this distinction is crucial. Not all innovative companies have a structured intellectual property portfolio or revenue already linked to a patent or comparable right. On the other hand, many incur development costs long before they are able to monetise their innovation. A clearer and broader scheme covering expenditure could therefore apply to a wider range of companies, including industrial firms, technology service providers and businesses involved in digital transformation.

Why the cantons do not all take the same approach

Swiss corporate taxation is based on a delicate balance between the Confederation and the cantons. This aspect is often seen as technical, but it directly influences SMEs’ access to tax relief schemes. According to Le Temps, the authors of the legal opinion recommend making the super-deduction mandatory in Switzerland, whilst the patent box would become optional.

The article also notes that improvements could already be made at cantonal level under current legislation. In particular, the cantons could define R&D and innovation activities more broadly or simplify the documentation requirements. For a business, this scope for interpretation can make a real difference: a project approved in one canton might be assessed more strictly in another, depending on administrative practice and how the application is prepared.

However, one institutional factor weighs on cantonal incentives: financial equalisation. According to the extracts provided, this system does not recognise the super-deduction, which may penalise a canton that grants this benefit to its businesses when calculating financial equalisation. The article suggests that this mechanism is one of the reasons why 16 cantons could already be doing more. Basel-Stadt, Glarus, Uri, Nidwalden and Lucerne are said to be among the cantons ranked lower in the study, whilst Geneva applies the law very strictly.

For a tax consultancy, this lack of uniformity calls for a pragmatic approach. Before promising a tax benefit to a client, it is necessary to examine cantonal practice, the nature of the project, the costs involved and the quality of the documentation. The question is not merely whether a company ‘carries out R&D’, but whether it can demonstrate this with consistent evidence: technical objectives, uncertainties encountered, staff involved, deliverables, time spent, invoices and internal decisions.

Reform proposals that would appeal to SMEs

The proposals reported by Le Temps take several different directions. The first involves extending deductible expenditure beyond researchers’ salaries alone. The authors cited refer in particular to laboratories, testing facilities and expenditure related to artificial intelligence. This approach addresses a reality well known to businesses: innovation is not limited to the salary costs of a research team.

An SME developing a new solution may need to purchase materials, commission external trials, hire equipment, set up a test environment, document data or integrate advanced digital tools. If tax law recognises only a narrow portion of these costs, the incentive effect remains limited. Conversely, a broader scope could better reflect the actual costs of a project.

The second proposal concerns the cap on deductible expenses. According to the article, the current system is limited to 50 per cent of staff costs, with an additional 35 per cent, making a total of 67.5 per cent, whilst some countries allow up to 200 per cent. The professors cited believe that a substantially expanded super-deduction could enable companies heavily involved in R&D to achieve a tax rate of less than 15 per cent, close to what is practised in the United States, according to their analysis.

The third option would be to introduce an R&D super-deduction at federal tax level as well. The article in *Le Temps* notes that this idea is linked to the use of the 25 per cent share of the national supplementary tax which the Constitution requires the Confederation to invest in order to enhance the country’s economic attractiveness. For businesses, a federal measure would have the potential advantage of greater consistency, even if its implementation would need to be clarified and coordinated with the cantons.

The authors also emphasise an important point: these arrangements should be accessible to all businesses, not just the multinationals targeted by the OECD’s proposed 15 per cent global minimum tax. This is essential for Switzerland’s economic fabric. An exporting industrial SME, a tech start-up or an engineering firm can contribute to innovation without having the size or structure of an international group.

What a business leader can do without waiting for reform

Even if the reforms mentioned are not yet a certainty, businesses can already start preparing. The first step is to identify projects that involve a genuine element of development: improving a process, solving a technical problem, creating a prototype, complex automation, or integrating a digital tool into a specific business environment. This does not mean reclassifying all IT expenditure as R&D, but rather identifying the work that warrants a tax analysis.

The second step is an accounting one. A company that fails to distinguish between its projects, costs, the staff involved and external expenditure will struggle to claim favourable tax treatment, even if the law becomes more generous. Simple cost accounting, project-based cost centres, reasonably documented timesheets and rigorous record-keeping of contracts and invoices can make all the difference during an audit or a request for clarification.

The third key practice concerns governance. Decisions on innovation should be documented at the time they are taken: why the project is being launched, what uncertainties exist, what stages are planned, and what results are expected. This documentation is not only useful to the tax authorities. It also helps the manager to manage the budget, measure variances, decide between internal recruitment and outsourcing, and discuss matters with investors or partners.

Finally, one must avoid jumping to conclusions. The applicable rules vary depending on the canton, the company’s profile, the nature of the expenditure and the group’s structure. An SME operating in several cantons or internationally will also need to examine transfer pricing, the location of functions, the ownership of intangible rights and the consistency between economic substance and declared profits.

The discussion on Switzerland’s tax attractiveness is therefore not an abstract debate amongst experts. It concerns the actual cost of innovation, the location of skilled jobs and the ability of SMEs to turn their ideas into sustainable profit margins. In an environment where other business centres are sharpening their incentives, Switzerland will have to choose whether to remain cautious – at the risk of losing ground – or to adapt its policy tools without sacrificing the legal certainty that is also one of its strengths.