Was bedeute tincentives

• KPMG Switzerland Blog
• Innovation tax incentives in Pharma, BioTech & MedTech

The pharmaceutical, biotechnology and MedTech industries are under intense pressure to deliver and introduce new drugs and technology despite tightened budgets and the closure and relocation of many R&D centers. R&D tax incentives offer a solution that may assist with the funding of R&D programs to help companies remain competitive, improve access to medicine and deliver a fast turnaround of disease diagnostics for patients.

Additional R&D tax deduction

R&D tax relief is available primarily for expenses associated with qualifying personnel directly involved in R&D in Switzerland. In addition, contract R&D in Switzerland is eligible as well. The level of additional R&D tax deduction varies from canton to canton but could provide up to an additional 50% deduction against the company’s taxable income at cantonal and municipal level.

How does it work?

The Swiss R&D incentive schemes, focusing on additional R&D tax deductions, are designed to recognize and reward companies incurring expenditure on R&D projects. Qualifying expenditure attracts an additional R&D tax deduction if the R&D is conducted in Switzerland. The level of the additional R&D tax deduction varies (max. 50%) but could provide an additional tax deduction against the company’s taxable income on qualifying R&D expense calculated as follows:

• qualifying personnel expenses considering an additional lift-up of 35% (to cover other R&D costs), and
• third-party costs (contract R&D with a related or third party) may be eligible based on 80% of invoiced costs. 

Scientific research and science-based innovation activities across any sector may qualify. In order to qualify, R&D activity needs to meet the respective criteria (i.e. novelty, creativity, uncertainty, systematic approach and transferability and/or reproducibility) of the OECD’s Frascati Manual. 

What types of activities can qualify?

The definition of R&D for Swiss tax purposes is much broader than the indicative list below. We would expect that – among others – the following activities in the pharmaceutical, biotechnology and MedTech industries could qualify for R&D tax deduction: 

• Design and development of autonomous diagnostic devices and integrated IT and biological solutions for enhanced diagnosis, disease targeting and product delivery.
• Design and development of new surgical, restorative and regenerative solutions.
• Clinical trials of phases I, II and III. Phase IV activities may qualify as R&D if there is further scientific or technological advance. 
• Design and development of new process platforms and test methods.
• Identification and development of new chemical entities, pre-clinical research and development.
• Design and development of new production processes for existing medical device products resulting in higher product yield.
• Development of new consumer drug formulations and coating techniques.

What is the benefit?

As an example, a profit-making company in Zurich that operates R&D and has CHF 1 million qualifying R&D expenses can benefit from an additional tax deduction for R&D of CHF 500,000. This would result in an annual tax benefit of approx. CHF 72,000 per CHF 1 million of qualifying expense resulting in 7.2% cost saving for R&D.

Patent box for successful R&D

In the case of successful R&D in the pharmaceutical, biotechnology and MedTech sectors, the patent box is another tax incentive for reduced taxation of profits. The reduction of patent-related profits amounts to a maximum of 90% for cantonal and municipal taxes and depends on the respective canton of domicile. The reduced taxation can be applied to profits from Swiss, European and foreign patents, supplementary protection certificates for medicinal products as well as documents on medicinal products with new active ingredients or new indicators, administration routes and dosages.

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  Benjamin Bellwald

  Expert, Corporate Tax

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