Swiss-based multinational companies such as commodities trader Glencore will receive subsidies and other incentives as the country prepares to implement the G7’s new plan for a global minimum tax as part of plans Switzerland is developing to maintain its competitive tax rates for large corporations to sign.
Bern is consulting its cantonal governments, which are setting their own corporate tax rates, to examine how measures such as research grants, social security deductions and tax credits could create “tools” to offset changes in overall tax rates, Financial Times officials said.
The proposed Swiss measures are another sign of how difficult it can be to implement the G7’s commitment to a global lower limit of 15 percent for corporation tax. Multinational companies based in the Swiss canton of Zug, for example, are currently taxed locally at just under 12 percent.
“Our clear goal is that Zug will continue to be one of the locations with the cheapest, internationally accepted tax rates in the future,” said Zug Finance Minister Heinz Tännler of the FT. “Our population has proven time and again that they are the. . . International companies need favorable conditions. ”
Despite having a population of just 8.5 million, Switzerland is home to some of the world’s largest multinational companies such as Nestlé, Novartis, Roche and ABB. Currently, 18 of the 26 cantons in Switzerland are collecting less than the minimum quota of 15 percent proposed by the G7.
The country is the most important country in the developed world for low corporate taxes, with an economy larger than all other European low-tax countries – such as Ireland, Hungary, Bulgaria and Cyprus – combined.
Swiss-based multinational corporations like Glencore receive subsidies to maintain competitive tax rates © Gianluca Colla / Bloomberg
Economiesuisse, the representative of Swiss companies, estimates that up to 250 companies based in Switzerland could be affected by the proposed new rules of the G7.
“There are still many questions about this agreement,” said Christian Frey, Deputy Tax Director of Economiesuisse. “But Switzerland will certainly be more affected than other countries.” He added, “Fortunately, there is a whole list of things we could do. We are confident that we can compensate for that. “
Many Swiss officials reined in claiming that their country is a tax haven where companies park their headquarters only for tax arbitrage. They indicate that many multinational companies based in Switzerland are of Swiss origin and employ a significant local workforce.
Nonetheless, if adopted worldwide, the G7 initiative will be the most recent major rule change that the international community has imposed on Switzerland. Since the 2008 financial crisis, the country has been under increasing pressure to lift its strict banking secrecy and tighten its liberal tax system.
Although both issues are deeply rooted in the country’s identity, Bern has recently taken a more conciliatory stance towards tax reform, arguing that it can gain more from compromise than stubbornness in principle. A federal law on tax reform came into force last year, aligning national corporate tax regulations with OECD standards.
Wherever possible, however, Switzerland acted domestically in order to secure its successful economic model.
A federal technical working group is researching how tax increases can be mitigated, said Frey. Large companies are also being consulted in the individual cantons as to which measures could make a difference in order to offset higher taxes. Analysts say one of the questions that needs to be resolved is whether subsidies are compatible 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 proposed G7 changes. Roche and Novartis spokespersons said it was too early to assess the impact of the new regulations.
At Nestlé, a spokesman said the company has already paid taxes in 150 countries around the world, with an effective global tax rate of 24 percent – well above the 14 percent levied in the canton of Vaud, where it is headquartered.
A new international tax framework will require “strong agreement between all countries” to be successful, added Nestlé. “It should be consistent, there should be security. . . and avoid double taxation. ”
Taxes, emphasized Frey, are just one aspect that makes Switzerland an attractive business location. “We have an open job market, a highly qualified workforce, very good educational and research facilities and an excellent infrastructure,” he said.
Nevertheless, the stakes are high. Corporate income tax makes a significant contribution to federal and cantonal income. In the canton of Basel-Stadt, for example, with its 201,000 inhabitants and the pharmaceutical companies Roche and Novartis, 20 percent of government revenue – around CHF 600 million annually – comes from corporate taxes.
“Large international companies are very important for our canton,” says Sven Michal, Secretary General of the Basel-Stadt Finance Department. “We’re not a place where there are many sheet brass companies. The companies we have here employ a lot of people and they pay a lot of taxes. ”
Reforms are “inevitable,” he said, but the federal government needs to be smart to minimize the impact of new changes.
“We are preparing. The most important message is that we want reform that keeps people and revenue here. That is the goal.”
Additional coverage from Chris Giles in London