ABSTRACT
Swiss federal law exempts from profits tax legal entities that are pursuing public-interest purposes. The following three conditions apply: exercise of a public-interest activity, in favor of an open circle of beneficiaries, and in making sacrifices for the sake of the greater public good. In addition, the tax-exempted entity shall not have an economic purpose. Commercial activities are nevertheless allowed as long as they remain secondary to charitable activities.
The Swiss legislation related to tax exemption applies classically to charity-type entities that are completely “not-for-profit.” On the other hand, “for-profit” entities are subject to full corporate tax on profit and capital. Over the past few decades, a hybrid form of entities has emerged that blurs the boundaries of the classical binary model (for-profit or not-for-profit). From the perspective of Swiss tax law, this study examines under what conditions these entrepreneurial activities, often in connection with development policies, can claim tax exemption. The aim is to explore the specific problems that these rules can present for social enterprises. We suggest that if one looks at the purpose of the law, the prohibition of “economic goals” should not apply directly to social entrepreneurship. We postulate that since social entrepreneurship is more social, the entrepreneur’s business model should fit in the law frame of tax-exempted activities.
