Central Swiss cantons' plans following acceptance of reforms to corporation tax

Following the acceptance of the reforms to corporation tax and AHV financing (pensions), as approved by 66 per cent of those who voted in last Sunday’s national referendum, including voters in Zug, the cantons, which are primarily responsible for tax matters in the country, have been setting out their plans. As journalist Rainer Rickenbach, who wrote this article, mentioned, the cards relating to inter-cantonal competition on fiscal matters have been shuffled anew.

However, according to Bruno Käch, a tax expert, lawyer and delegate of the board of the Lucerne Trades Fiduciary Agency (a private company), the central Swiss cantons had been looking at how they might adapt to the new fiscal landscape long before last Sunday’s referendum. “Indeed, in a national comparison, central Swiss cantons are all very well prepared, though, of course, there are differences, with Zug, Nidwalden and Schwyz to be able to offer better tax incentives than Lucerne”.

The article went on to mention that the cantons have until the end of this year to set out their new fiscal policies now the privileges for internationally-operating Holding companies in Switzerland are to come to an end next year. These are now to be taxed in the same way as normal Swiss companies.

One big question remains, will these Holding companies remain here? Let it be remembered they contribute CHF 3.6 billion to the State and CHF 2 billion to the cantons. And they are mobile. The location of their tax base is for the most part independent of the location where production takes place. “If they get the idea the tax burden is too high, they will move away,” said Käch.

However, both the State and the cantons agree they want to ensure corporation taxes remain low for both internationally- operating and indigenous companies.

Following the result of last Sunday’s referendum, the cantons were given the green light to make their own alterations in relation to tax matters. Only in five of them is it clear what they intend to do and indeed, the final word on this could mean further referendums in the autumn.

As previously reported, the canton the most adversely affected is that of Zurich, whereas the six central Swiss cantons already have low rates of corporation tax, with those of Zug, Nidwalden, Uri and Schwyz planning to lower theirs even further by 2020, from 14.5 per cent to 12.1 per cent in the case of Zug, from 12.7 per cent to 11.97 per cent in the case of Nidwalden, from 14.9 per cent to 12.5 per cent in the case of Uri and from 15.2 to 14.3 per cent in the case of Schwyz.

With Lucerne sticking to its current 12.3 per cent, it will no longer be able to claim it is the canton with the lowest corporation tax. Out of interest, the canton of Obwalden will also be adhering to its current level of corporation tax at 12.7 per cent. The figures quoted here are those sourced from KPMG.

One other interesting aspect of all this relates to the canton of Schwyz, which as mentioned, is already one of low taxation. It is here that there is one municipality in particular, that of Freienbach, on the southern shores of Lake Zurich, to the northeast of Wollerau, which is levying corporation tax levels of 11.93 per cent only, below that of Zug.

Of course, it is not just at corporation tax which companies look at, tax on dividends and capital, and possible deductions relating to research and development and so-called patent boxes, are also taken into consideration.