Switzerland plans subsidies to offset G7 corporate tax plan
Bern is consulting its cantonal governments - which set their own corporate tax rates - to examine how measures such as research grants, social security deductions and tax credits could create a “toolkit” to offset any changes to headline tax rates, officials told the Financial Times.
The proposed Swiss measures are another sign of how
difficult it may prove to implement the G7’s commitment to a global 15 per cent
floor on corporation tax. Multinationals based in the Swiss canton of Zug are
for example currently taxed locally at just under 12 per cent.
“It is our clear goal that Zug will still rank among the
locations with the most advantageous, internationally accepted tax rates in the
future,” Heinz Tännler, Zug’s finance minister, told the FT. “Our population
has proved again and again that it is aware of the . . . needs of international
companies for favourable conditions.”
Despite a population of just 8.5 million, Switzerland is
home to some of the world’s biggest multinationals, such as Nestlé, Novartis,
Roche and ABB. Currently, 18 of Switzerland’s 26 cantons levy currently less
than the 15 per cent minimum proposed by the G7.
The country is the developed world’s most significant
jurisdiction for low corporation taxes, with an economy larger than all of
Europe’s other low tax countries - such as Ireland, Hungary, Bulgaria and
Cyprus - combined.
Economiesuisse, the body that represents Swiss businesses,
estimates that as many as 250 Swiss-based companies could be affected by the
G7’s proposed new rules.
“There are still many questions open about this agreement,”
Christian Frey, deputy head of tax at economiesuisse said. “But Switzerland
will certainly be affected more than other countries.” He added: “luckily there
is a whole list of things we could do. We are confident we can compensate.”
Many Swiss officials bridle at the suggestion their country
is a tax haven, where companies merely park their head offices for tax
arbitrage. They point out that many Swiss-based multinationals are of Swiss
origin and employ significant local workforces.
Mounting pressure
Still, the G7 initiative, if globally adopted, will be the
latest sweeping rule change imposed by the international community on
Switzerland. Since the 2008 financial crisis, the country has faced mounting
pressure to roll back its stringent banking secrecy laws and tighten up its
liberal tax regime.
Although both issues are deeply rooted in the country’s identity,
Bern has recently adopted a more outwardly conciliatory attitude towards tax
reform, reasoning it has more to gain through compromise than principled
obduracy. Last year, a federal act on tax reform came into force bringing
national corporate tax rules in line with OECD standards.
Where possible, however, Switzerland has acted domestically
to safeguard its successful economic model.
A federal technical working group is researching on how to
mitigate tax rises, Frey said. Big businesses are also being consulted in
individual cantons on what measures might make a difference to offset higher
taxes. Analysts say that among the questions to be resolved are whether
subsidies would be compliant with World Trade Organization rules.
Most of the largest Swiss companies based in low-tax cantons
contacted by the FT, including Glencore, declined to comment on the G7’s
proposed changes. Spokespeople for Roche and Novartis said it was too early to
be able to assess the impact of the new rules.
At Nestlé, a spokesperson said that the company already paid
taxes in 150 countries around the world, with an effective global rate of 24
per cent - far above the 14 per cent rate charged in the canton of Vaud, where
it has its headquarters.
A new international tax framework will need “strong
agreement among all countries” to succeed, Nestle added. “It should be
consistent, provide certainty . . . and avoid double taxation.”
Attractive business location
Taxes, Frey stressed, were also only one element of what
makes Switzerland an attractive business location. “We have an open labour
market, a highly skilled labour force, very good education and research
institutions and excellent infrastructure,” he said.
Nonetheless, the stakes are high. Corporation tax
contributes heavily to both federal and canton revenues. In the canton of Basel
City for example, home to 201,000 residents as well as the pharmaceutical
companies Roche and Novartis, 20 per cent of government revenues — around
CHF600 million ($670 million) annually — come from corporation taxes.
“Big international companies are very important to our
canton,” said Sven Michal, secretary-general of the Basel City finance
department. “We’re not a place where there are a lot of brass plate companies.
The businesses we have here employ a lot of people and they pay a lot of
taxes.”
Reform is “unavoidable” he said, but the federal government
would have to be clever to help minimise the impact of new changes.
“We’re preparing. The most important message is that we want
a reform that will keep employees and revenues here. That’s the goal.”
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