Anal­y­sis: Swiss hold ref­er­en­dum over multi­na­tion­als’ tax perks

The Star Early Edition - - BUSINESS REPORT - Reuters

US MED­I­CAL im­plant maker Zim­mer Biomet’s de­ci­sion on a po­ten­tial $40 mil­lion (R537.25m) in­vest­ment in its Swiss fac­tory has been put on hold un­til the out­come of a ref­er­en­dum next month on tax re­form.

A long-stand­ing tax break that has at­tracted thou­sands of com­pa­nies to Switzer­land is set to go and the is­sue for Zim­mer and some 24 000 in­ter­na­tional firms is how the new regime will stack up against other low­tax ju­ris­dic­tions.

That’s not im­me­di­ately clear as Switzer­land’s 26 re­gions, or can­tons, set their busi­ness taxes. Con­sul­tants KPMG reckon the av­er­age Swiss cor­po­rate rate will be about 14 per­cent af­ter the re­form, above Ire­land’s 12.5 per­cent, but lower in some can­tons. (Graphic on tax rates: http://tm­snrt.rs/2kdi2Ow)

Switzer­land has been in the EU’s fir­ing line for years, be­cause can­tons have a spe­cial tax sta­tus for for­eign com­pa­nies that means some pay vir­tu­ally no tax over an ef­fec­tive fed­eral tax of 7.8 per­cent.

The coun­try agreed with Brus­sels in 2014 to abol­ish this sta­tus as it al­lows some for­eign firms to pay far lower tax on over­seas earn­ings, an at­trac­tive perk for multi­na­tion­als look­ing to lower tax bills.

Most Swiss recog­nise the coun­try needs tax re­form to avoid be­ing black­listed as a low-tax pariah, but the new mea­sures pro­posed to help com­pa­nies off­set the loss of the spe­cial sta­tus breaks have cre­ated deep di­vi­sions.

Com­pa­nies will get tax breaks on re­search and de­vel­op­ment in Switzer­land, prof­its from patents de­vel­oped there and de­duc­tions for ex­cess com­pany eq­uity.

In ad­di­tion, many can­tons say they will also re­duce cor­po­rate tax rates for all com­pa­nies to re­duce the fis­cal bur­den and dis­suade multi­na­tion­als from leav­ing.

Zug, for ex­am­ple, taxes spe­cial sta­tus firms at 8 per­cent to 11 per­cent and or­di­nary com­pa­nies at 14.6 per­cent. Af­ter the re­forms, it plans to tax all com­pa­nies at 12 per­cent.

Lower rev­enue

The “No” cam­paign comes from a coali­tion in­clud­ing the So­cial Demo­crat Party, Greens, trade unions and church lead­ers, as well as some from right-lean­ing par­ties that back the pro­pos­als.

They say the re­forms over­all will lead to lower tax rev­enue, and fear the pub­lic will bear the brunt through cuts in pub­lic ser­vices or higher per­sonal taxes.

The fed­eral gov­ern­ment has pledged to give can­tons an ex­tra (Swiss francs) CHF1.1 bil­lion (R14.78bn) to help cover ex­pected bud­get short­falls.

But crit­ics say the new tax breaks would punch a CHF3bn hole in bud­gets. They es­ti­mate that in Zurich, cit­i­zens would face a 14 per­cent in­crease in in­come tax to cover an ex­pected an­nual short­fall of CHF223 mil­lion.

“No one is dis­put­ing that there is a need for re­form, but with this pro­posal or­di­nary peo­ple are fi­nanc­ing the big com­pa­nies who are tak­ing record div­i­dends out of Switzer­land,” said Swiss law­maker Jac­que­line Bad­ran.

Af­ter par­lia­ment ap­proved the mea­sures last year, crit­ics gath­ered the 50 000 sig­na­tures needed to trig­ger the Fe­bru­ary 12 ref­er­en­dum, which can over­turn the par­lia­men­tary vote.

Those back­ing the gov­ern­ment say the re­forms strike a bal­ance be­tween abol­ish­ing the tax breaks crit­i­cised by Brus­sels and new mea­sures that will keep Switzer­land com­pet­i­tive. –Reuters

PHOTO: REUTERS

Em­ploy­ees pack im­plant nails at a plant of med­i­cal im­plants maker Zim­mer Biomet in Win­terthur, Switzer­land.

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