Canton of Bern has some catching up to do in the area of taxes

Canton of Bern has some catching up to do

In an intercantonal comparison of the taxation of individuals and legal entities, the Canton of Bern is still one of the nation's lowest-ranked cantons. The canton is currently struggling with the upcoming Corporate Tax Reform. This is only one of the many findings of the “Bern Tax Monitor 2015” which was prepared jointly by KPMG and the Trade and Industry Association of the Canton of Bern.

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The "Bern Tax Monitor 2015" has analyzed the situation surrounding intercantonal tax rate competition in the Canton of Bern with a focus on the taxation of individuals and legal entities. “The results show that the Canton of Bern still has a lot of catching up to do,” explains Hans Jürg Steiner, Head of KPMG in Bern. “CTR III and the associated elimination of privileged taxation make it even more necessary to take action.”


A summary of the key facts revealed by the analysis:

Taxes in the Canton of Bern are not competitive

  • The national comparison reveals that corporate tax rates in the Canton of Bern remain at the same high level with the result that the canton cannot compete with the tax rates for companies found in the other cantons of German-speaking Switzerland and will come under additional pressure when CTR III enters into force.
  • The consultation draft on the tax strategy of the Canton of Bern foresees a gradual adjustment of the corporate tax rate from 2018 to 2021 to no more than 16.37% (version 1) or 17.69% (version 2) along with a shift from a three-bracket to a two-bracket progressive tax rate. This would result in a maximum simple corporate tax rate of 2.5% (version 1) or 3.0% (version 2) compared to the 4.6% currently levied.
  • Over the past few years, many cantons have cut their corporate tax rates or announced their intentions of doing so as part of CTR III. In the Canton of Bern, however, the rates have remained at a consistently high level.
  • The Canton of Bern has an attractive capital tax rate.
  • The governing council's tax strategy provides for a reduction to 0.1 per mil as of 2018. No changes will be made as to how corporate tax is credited against capital tax.
  • A total of 6% of companies bear over 90% of the tax burden.

High top tax rates and little relief for low incomes

  • With regard to its taxation of individuals, the study reveals that the Canton of Bern levies very high income taxes with high top tax rates.
  • Bern offers less relief for lower incomes than other cantons while incomes of CHF 200,000 or more are subject to relatively high progression.
  • The percentage of taxpayers in the Canton of Bern with high incomes is correspondingly low.
  • The canton's relatively attractive wealth tax has helped it retain at least a few very high-net-worth taxpayers.
  • No further tax relief is planned within the scope of the tax strategy – with the exception of measures for the “reconciliation of work and family life” (increase in deductions for the cost of childcare).
  • In the very same tax strategy, however, the motor vehicle tax which had been reduced as of 1 January 2013 will be raised again as a financing measure, this time to the Swiss average. It also calls for a reassessment of the value of non-agricultural property and hydropower for 2019.

Urgent need for improvements to corporate taxation

Adrian Haas, Director of the Trade and Industry Association of the Canton of Bern (HIV), is convinced that “there is an urgent need to take action with regard to legal entities.” The HIV's concrete demands regarding corporate taxation: 

  • With labor and capital becoming increasingly mobile, the tax burden of legal entities is a critical factor in companies' choice of location. Once a frontrunner in this area, the Canton of Bern has lost its advantageous standing over the past few years.
  • This year's Tax Monitor shows that several different cantons are working on getting in shape with a view to CTR III. The competitive situation is thus intensifying even further to the detriment of the Canton of Bern.
  • Even in its tax law revision for 2016, the Canton of Bern has failed to take any first step which would move it toward the middle of the ranking. Proposals to this effect were rejected by both the government and the Cantonal Parliament. The current situation represents a clear location disadvantage.
  • The governing council's tax strategy (after the nearly inexplicable rejection of such proposals during last year's September session of the Cantonal Parliament) now contains a gradual decrease in the corporate tax rate for legal entities as well as a slight reduction in capital tax. This change will boost the Canton of Bern's ranking from 24th place at present to 13th or 16th place in the intercantonal comparison where all other factors remain largely unchanged. The HIV welcomes this strategy in principle yet, in light of the dynamics currently visible in connection with CTR III, calls for the target ranking to be set lower.

Attractiveness of individual taxation also in need of a boost

Even after the tax revisions of 2012 and 2014, as well as the recently adopted revision for 2016, tax rates for individuals still remain unattractive in the Canton of Bern. Taxpayers in all categories – particularly business executives – have a much higher tax burden in the intercantonal comparison. This results in a situation in which companies have difficulties recruiting executives and many high-income individuals move their residences outside the canton. The consequences are economic weakness, a loss of the tax base and additional commuting.

  • While 65,798 (2011: 62,313) commuters currently drive to the Canton of Bern for work, 45,398 (2011: 42,126) people from Bern drive to other cantons on a daily basis. Overall, therefore, the canton loses a net total of 20,400 taxpayers to other cantons.
  • When the flat-rate business expense deduction was abolished in 2014 as part of the Supply and Structural Review, income taxes for individuals in the Canton of Bern were raised by over CHF 60 million. The CHF 6,700 limit on vehicle deductions, which was adopted as part of the 2016 tax law revision, equates to another bottom-line tax hike of CHF 30 million. The increase in deductions from CHF 3,100 to CHF 8,000 for expenses relating to third-party caregivers, which was also adopted together with the tax law revision of 2016, is positive from an economic standpoint yet, at approx. CHF 8 million, it is not able to fully offset the additional tax burden.
  • The tax strategy recently presented by the governing council is solely focused on legal entities and thus inadequate. 

Sustainable development of the tax location

“The Bern Tax Monitor 2015 illustrates in a well-founded, objective manner that taxes represent a considerable location disadvantage in the Canton of Bern. This holds true for both businesses and individuals,” explains Kurt Rohrbach, President of the HIV, and goes on to explain:

  • Given the current dynamics, the Canton of Bern's disadvantage as a tax location will intensify even further, particularly in connection with CTR III – and despite the tax strategy.
  • In light of the challenges currently being faced, including the strong franc, the tax disadvantage will weigh heavy on the economy.
  • This disadvantage cannot be compensated by location advantages in other areas. Changes to the budget are unavoidable and urgently required, even if they are unpopular.
  • It will take too long for the measures set out in the tax strategy presented to take effect and they do not go far enough. The tax treatment of individuals has also been left largely unchanged.
  • Numerous businesses are currently being forced to take drastic measures in terms of cutting costs and human resources. They should be able to expect their local canton to take responsibility for its budget.

The “Bern Tax Monitor 2015”

The “Bern Tax Monitor” is a systematic, intercantonal comparison of the tax competitiveness of the Canton of Bern, particularly with regard to neighboring cantons. It analyzes the canton's attractiveness in terms of corporate taxation, individual taxation, location quality and revenue structure. The “Bern Tax Monitor 2015” was prepared jointly by KPMG and the Trade and Industry Association of the Canton of Bern. It was prepared for the first time in 2012 and is published in the fall of every year.

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