Switzerland: Towards the end of the tax gifts to foreign companies

For the Socialist Senator Roberto Zanetti, the reform is an open-heart surgery, which must be done with great accuracy.

Under pressure from the EU, G20 and the OECD, also Switzerland is obliged to give up his special tax regimes for holding companies and management companies. After years of negotiations with Brussels and internal consultations, the new reform of corporate taxation, likened to “an open-heart surgery in the national tax system”, was adopted by the House of cantons.

Coincidence of the parliamentary Monday the House of cantons was called within a few hours to approve the new law on the automatic exchange of information in tax matters and the reform of corporate taxation III. In other words, to give up banking secrecy is that the preferential tax regimes granted to foreign companies: two “specialty” of the Swiss legal system that allowed long to attract capital and companies from all over the world and that, until a few years ago, they were in defending against any attack from abroad.

To mark their end was the last international financial and economic crisis, which has prompted the Member States of the G20 and the EU to adopt a common strategy to fight against tax evasion is its taxpayers against tax loopholes used by transnational corporations. As for businesses, this common strategy will henceforth be named Basic Erosion and Profit Shifting (BEPS), the largest project of harmonization of the international tax system, developed by the Organization for Economic Cooperation and Development (OECD) – commissioned G20 and the EU – in order to force companies to pay taxes in the countries in which they operate effectively.

The Confederation was over since 2007 in the sights of Brussels for special tax arrangements granted by the cantons to holding and management company, who are based in Switzerland, but there are generally held businesses. In most cases they are limited to exercise administrative functions or empty the mailbox. After resisting for years, the Swiss government was forced last year, along with several other countries, to yield to pressure reached by the EU and the G20, which threatened sanctions and blacklists. The Corporate Tax Reform III, now referred to Parliament, then serves primarily to adapt Swiss law the new international standards.

Unwanted child

“Nobody really wants this tax package,” said Pirmin Bischof, a senator of the Democratic People’s Party (PPD), during the debate in the House of cantons. “This project is not a desired child”, echoed the senator’s Liberal Party (FDP) Karin Keller-Sutter, remembering how special tax regimes have contributed for a long time to become an attractive Swiss economy and bring a lot of money in the coffers of the cantons and the Confederation.

But, for both, there are now more alternatives. Without adjusting the system of corporate taxation, the Swiss would be exposed only to retaliatory measures by other countries, but could also jeopardize one of its strong points for foreign companies: legal security and planning. Faced with such legal uncertainty, many companies probably would leave the country. By 31 votes to 9, the chamber representing the cantons thus approved the Corporate Tax Reform III, who decreed the abolition of tax disputed internationally.

In the future, the holding and management companies will then be subject to the tax rates in the cantons – applied on profits – in force for other businesses. In Switzerland it is based almost 25,000 companies with a special tax status that provide a revenue of over CHF 3 billion to the federal government and approximately 2 billion to the cantons. To prevent an exodus of the company so far preferred, the government urges the cantons to lower tax rates for all companies located in their territory.

Squaring the circle

“The Reform III imposition dell’imprese is a open-heart surgery in the Swiss tax system. This surgery should be done so with great accuracy, “he warned the Socialist Senator Roberto Zanetti. “It is primarily to take account of international criticism and to re-establish international consensus. Second, it comes to maintaining an internationally competitive tax burden in order to prevent the departure of highly mobile society. And, third, to ensure continued tax revenues of the companies for the federal government, the cantons and municipalities. ”

To achieve this squaring of the circle, the government project is split up into two main measures. Instead of special tax regimes, the cantons will introduce the “patent box”, which allow preferential treatment of profits from patents and similar rights, achieved by companies active in research and development in Switzerland. These “patent box”, already used by other European countries, included in the new international standards set by the BEPS project, although not yet been clearly defined by the OECD.

In addition, the government offers financial compensation to the cantons, which will be compared to a loss of tax revenue due to the general reduction of the tax on profits of companies. The government plan included, among other things, to increase from 17 to 20.5% share of Tax Direct federal poured the cantons. The Council of States has, however, decided Monday to bring even this share to 21.2%. This measure will reduce federal tax revenues of 1.3 billion francs.

Referendum in sight

Definitely too much in the eyes of the left, which is untenable that the center-right majority wants to introduce tax relief for companies and, at the same time, impose new savings plans at the expense of agriculture, research and education. “International companies that create the most value no longer seek squares cheaper from taxation. For them it is much more important to have a highly qualified workforce, a good research environment, excellent infrastructure and strong industrial clusters. Just what is being jeopardized by the massive savings plans “, said Socialist Senator Anita Fetz.

The bourgeois majority of the House of cantons rejected, however, all the measures proposed by the left to compensate for the tax losses provided, including a levy of 100% of the dividends, instead of the current 50%. Even before the examination of the tax reform by the House of the people, the Socialist Party is already threatening a referendum then.