On Sunday 19 May the people of Switzerland are to vote on the greatest reform to corporation tax for decades. It has been noticed there is little anticipation anywhere in the country as the system hitherto has been regarded as decisively more acceptable, with many cantons providing Holding companies or headquarters of internationally-operating concerns based here with fiscal privileges. Privileges, however, which are no longer compatible with international competition law, and not least within the European Union.
When the KPMG Swiss Tax Report was presented in Zurich last Tuesday, fiscal expert Peter Uebelhart commented that if the nation rejects the reforms, as they did two years ago, then Switzerland could face severe counter measures on the part of other countries.
In fact regardless of the outcome of the forthcoming referendum, a number of cantons have already opted to modify their fiscal arrangements to make them internationally compatible, replacing some of the privileges by methods as practised in other countries. One such canton is the City of Basel, where many pharmaceutical companies are based, which is protecting its tax sources by a so-called patent box.
It is through such a system that licensing fees from patents can still benefit from fiscal privileges, the canton having already reduced the level of corporate tax it levies from 22 per cent to 13 per cent from the beginning of this year. In a similar move, the canton of Vaud, which equally attracts foreign companies, has reduced its rate from 21 per cent to14, the cantonal government there knowing it can rely on any reduction in income from tax to be made up by the State. While Holding companies in the past paid only little in cantonal tax, they still had to pay a set 8.5 per cent in tax on earnings directly to the State.
The KMPG company has analysed the planned changes in corporation tax of the individual cantons and produced this list, those where companies will pay the least at the top. Interesting to note is that there are five central Swiss cantons in the top ten, with Nidwalden at the top and Zug in third place. In second place is the half canton of Appenzell Innerrhoden.
As is also evident from the chart, Zurich and Argovia are at the bottom of the list. Of note, too, is that while the difference between the current lowest rate of tax (in Lucerne) and the current highest (in Geneva) amounts to12 per cent, the range in new levels for 2020 will be less. Those cantons losing out the most will be those who do not introduce a patent box system, one of which being that of Zurich.