Analysis: Swiss hold referendum over multinationals’ tax perks
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