Switzerland plans subsidies to offset G7 corporate tax plan

Switzerland-based multinationals, such as commodity trading company Glencore, will receive subsidies and other incentives under plans Switzerland is in place to keep its tax rates competitive, even as the country prepares to sign up for New G7 Plan Minimum global taxation for large corporations.

Bern is consulting with 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 in key tax rates, officials told the Financial Times. .

The proposed Swiss measures are Another sign of how difficult it is It may prove to be implementing the G7’s commitment to a global minimum of 15 per cent on corporate tax. Multinational corporations headquartered in the Swiss canton of Zug, for example, are currently taxed at just under 12 percent.

“Our clear goal is that Zug will remain among the locations with the most advantageous and internationally acceptable tax rates going forward,” Heinz Tanler, Zug’s finance minister, told the Financial Times. “Our people have proven time and time again that they are familiar with . . . the needs of global companies on favorable terms.”

Despite having a population of only 8.5 million, Switzerland is home to some of the world’s largest multinational corporations, such as Nestlé, Novartis, Roche and IBB. At the moment, 18 of the 26 cantons in Switzerland tax less than the 15 percent minimum suggested by the G7.

The country is the most important jurisdiction in the developed world for low corporate taxes, with an economy larger than all the other low-tax countries in Europe – such as Ireland, Hungary, Bulgaria and Cyprus – combined.

Switzerland-based multinational companies like Glencore will receive subsidies to maintain competitive tax rates © Gianluca Colla / Bloomberg

EconomySwiss, the body representing Swiss companies, estimates that as many as 250 Swiss-based companies could be affected by the proposed new G7 rules.

“There are still many questions about this agreement,” said Christian Frey, Vice President of Taxation at EconomySuisse. “But Switzerland will certainly be affected more than other countries.” He added, “Fortunately, there is a whole list of things we can do. We are confident that we can make up.”

Many Swiss officials are turning to the suggestion that their country is a tax haven, with companies shutting down only their main offices tax arbitrage. They noted that many of the multinational companies based in Switzerland are of Swiss origin and employ a large local workforce.

However, the G7 initiative, if adopted globally, would be the latest sweeping rule change imposed by the international community on Switzerland. Since the 2008 financial crisis, the country has faced increasing pressure to roll back strict bank secrecy laws and tighten its liberal tax system.

Although both issues are deeply rooted in the country’s identity, Bern has recently adopted a more conciliatory stance toward tax reform, arguing that more can be achieved through compromise than initial stubbornness. Last year, a federal law on tax reform went into effect, bringing national corporate tax rules into line with OECD standards.

But where possible, Switzerland worked locally to protect its successful economic model.

Frey said a federal technical working group is looking at how to mitigate the tax increases. Large companies in individual cantons are also consulted on measures that might make a difference to offset higher taxes. Analysts say one of the questions to be resolved is whether the subsidy will be compatible with World Trade Organization rules.

Most of the large Swiss companies located in low-tax cantons contacted by the Financial Times, including Glencore, declined to comment on the proposed changes to the Group of Seven. Spokespeople for Roche and Novartis said it was too early to assess the impact of the new rules.

At Nestlé, a company spokesperson said the company has already paid taxes in 150 countries around the world, with an effective global rate of 24 per cent – well above the 14 per cent rate charged in canton Vaud, where it is headquartered.

Nestle added that any new international tax framework would need “a strong agreement among all countries” to succeed. “It must be consistent, provide certainty . . . and avoid double taxation.”

Frey stressed that taxes were also only one element that made Switzerland an attractive trading location. “We have an open job market, a highly skilled workforce, very good educational and research institutions, and an excellent infrastructure,” he said.

However, the risks are great. Corporate tax contributes significantly to both federal and cantonal revenue. In canton Basel-Stadt, for example, which is home to 201,000 residents as well as drug companies Roche and Novartis, 20 percent of government revenue – about CHF600 million a year – comes from corporate taxes.

“Big global companies are very important to our canton,” said Sven Michal, Secretary General of the Finance Department in Basel-Stadt. “We are not a place where there are a lot of copper plate companies. The companies we have here employ a lot of people and pay a lot of taxes.”

He said reform is “inevitable,” but the federal government has to be smart to help reduce the impact of the new changes.

“We are preparing. The most important message is that we want a reform that keeps employees and revenue here. That is the goal.”

Additional reporting by Chris Giles in London

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