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SWITZERLAND: An Introduction to Corporate/M&A

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Switzerland: An Introduction to Corporate|M&A 2019

Switzerland is a stable and modern market economy with one of the world's lowest unemployment rates, a highly skilled labour force, and a GDP per capita that is among the highest in the world. According to the World Economic Forum’s Global Competitiveness Report 2018, Switzerland ranks fourth place globally (after the United States, Singapore and Germany) in terms of competitiveness, being named one of the world's "super innovators." The high ranking is driven by Switzerland's conducive institutional framework, top-notch transport and utility infrastructure, sophisticated and stable financial system and well-functioning labour market. Other key advantages of Switzerland as a business hub are the sophistication of its businesses and the quality of its education system. Switzerland’s reasonable corporate tax rates contribute to the country's status as one of the most competitive economies in the world.

The Swiss Federal Government adopts a relaxed attitude of benevolent non-interference towards foreign investment, creating and maintaining favourable conditions for both Swiss and foreign investors. In principle, there are no restrictions for foreigners wishing to do business in Switzerland or wishing to invest in Swiss businesses. One exception is the Federal Act on the Acquisition of Real Estate by Foreign Nationals, the so-called Lex Koller, which restricts the acquisition of residential real estate by persons living abroad. The Lex Koller does, however, in principle not restrict the acquisition of real estate used for commercial purposes. Except for the financial sector (e.g. banks, wealth management companies and insurances) and for certain professions (e.g. lawyers, auditors, professions in the healthcare sector, education sector and construction sector), there is in general no permit required for doing business in Switzerland.

Switzerland has a transparent, effective and reliable legal system. Swiss corporate law is characterised by a relatively low level of regulation, although an increase in political efforts to introduce new regulations can be observed (e.g. the people's initiative on "responsible business" protecting human rights and the environment). Compared to its neighbouring countries, Swiss employment law is less restrictive and the social security contributions paid by the employer in Switzerland are reasonable compared to some EU countries.

The strength of the Swiss economy lies mainly in its international outreach and strong intertwining with the economies of other countries. Although Switzerland is not a member of the EU, and is unlikely to join the EU in the near future, its relation with the EU is governed by a series of bilateral agreements. Switzerland and the EU are constantly negotiating new agreements. Currently, there are about 20 main bilateral treaties plus about 100 further bilateral agreements in place between Switzerland and the EU. Currently, a framework agreement on "institutional issues" aiming to ensure that current and future agreements on market access between Switzerland and the EU are applied more consistently and efficiently has been finalised and is awaiting approval and implementation. Switzerland has also been adapting its legal system to international standards in line with the standards of the EU in order to further enhance its international competitiveness. In addition, Switzerland's strong banking sector, which accounted for around 9% of overall economic value creation in Switzerland in 2017, and Switzerland's leading position in the global pharmaceutical, biotech, robotics and virtual reality industries, attract new companies and a qualified labour force.

Switzerland is currently undertaking a comprehensive corporate tax reform in order to abolish the cantonal tax privileges of the holding, domiciliary and mixed companies and substitute them with new competitive and internationally accepted measures. One of the proposed measures is the so-called licence box, pursuant to which certain companies may benefit from reduced tax rates for certain income from patents and other IP rights. After a first bill was rejected by the Swiss voters in 2017, the Swiss Federal Government published an amended proposal in January 2018. Depending on the progress of the legislative process (currently, a popular vote on the tax reform is envisaged to take place in 2019), the revision may take effect in 2020.

Another project in the legislative process is the revision of corporate law. In November 2016, the Swiss Federal Council published its proposal regarding a revision of Swiss corporate law. The aim of the revision is to strengthen corporate governance, to modernise the incorporation and capital structure of public and private companies in Switzerland and to increase legal certainty. Depending on the progress of the legislative process (deliberations in parliament started in early 2018; in late 2018, one of the Swiss legislative chambers rejected certain additional changes proposed by its own legal commission and requested a more liberal proposal), the corporate law revision may take effect in early 2021.

After 2017's high M&A activity levels, M&A activity of Swiss businesses in 2018 remained on a high level, both in terms of the number of deals and the value of deals. All industries contributed to a strong year for M&A in Switzerland, but particularly noteworthy deals took place in the chemical sector (e.g. the aborted merger of equals between the Swiss-listed Clariant and the NYSE listed Huntsman Corporation which finally led to SABIC taking a stake of 24.99% in Clariant, and the acquisition of Swiss-listed company Syngenta by ChemChina) and the industrial technology sector (e.g. the acquisition of ABB's power grids business by Japanese acquirer Hitachi for USD11 billion, and the sale of OC Oerlikon's Drive Systems segment valued at USD600 million to Dana Incorporated). 2018 was also a very successful year for private equity: the number of private equity deals in Switzerland reached 160 transactions, making 2018 a record year for private equity transactions in Switzerland since the beginning of the respective statistical surveys.

For 2019, further revisions to business and operating models are to be anticipated, not only in the large international companies but also the many Switzerland-based small and mid-sized firms. This is particularly due to the digitalisation of business models. We expect M&A to continue being strong in the life sciences sector and to become more important in fintech and the related sectors.