As revealed by KPMG’s Swiss Tax Report 2016, Switzerland remains one of the highest-ranked countries in international tax competition – particularly with regard to corporate taxation. The upcoming Corporate Tax Reform III will play a fundamental role in this competition. Up for discussion is an estimated tax base of up to CHF 14 billion.
KPMG's Swiss Tax Report 2016 compares the corporate and income tax rates in 130 countries as well as all 26 cantons. This year's report confirms a leveling off of the downward trend for top corporate rates seen in recent years: While the average corporate rate in Switzerland has declined by a total of 3.42 percentage points over the past ten years, the average reduction reported for 2015 was merely 0.01% percentage points and 0.08% percentage points for 2016. In terms of top tax rates for individuals, a marginal year-on-year increase of 0.01% is discernible in the average income tax rates paid across all Swiss cantons.
In a nationwide comparison of corporate tax rates in cantonal capitals, the Canton of Lucerne tops the list with a maximum effective pre-tax rate of 12.32%, as in the previous year, followed closely by the cantons of Nidwalden and Obwalden at 12.66% as well as Appenzell-Ausserrhoden with 13.04%. While a slight 0.11 percentage point drop in the tax rate can be found in the Canton of Uri, where the rate fell from 15.12% to 15.01%, the Canton of Schwyz notched its tax rate up by 0.41% percentage points, from 14.86% to 15.27%. As was already the case in the previous year, the greatest reduction was seen in the Canton of Neuchâtel, namely by 1.40 percentage points, whereby a noticeable reduction from 22.79% to 22.09% was also enacted in the Canton of Vaud. Like the year before, the regular corporate tax rates of Western Switzerland, the Mittelland region and the city cantons are considerably lower than those in the cantons of Central and Eastern Switzerland. The highest corporate tax rates are levied in the cantonal capitals of Geneva (24.16%) and Basel-Stadt (22.18%).
At the European level, too, the cantons of Central and Eastern Switzerland can assert themselves vis-á-vis rival locations as extremely attractive economic regions from a tax perspective. Lower corporate tax rates are only found in the Channel Islands and some counties in Eastern and South-Eastern Europe. Ireland still represents the biggest competitor in Europe in terms of business taxes: Given Ireland's rate of 12.50%, the only canton in Switzerland that can compete is Lucerne with a regular corporate tax rate of 12.32%. Tough competitors outside Europe are the two financial hubs of Hong Kong and Singapore. With average corporate tax rates of 16.50% and 17%, respectively, they are below the overall average for Switzerland as a whole. One important aspect to keep in mind when considering this comparison is that international competition not only plays out through ordinary tax rates but that special tax policies still play a major role, as well. Accordingly, the compensatory measures for Corporate Tax Reform III (CTR III) currently up for discussion are pivotal.
While putting together its Swiss Tax Report 2016, KPMG used the information publicly available to calculate what could be at stake if CTR III were not implemented with, or respectively without, effective compensatory measures. The data used for this analysis consisted primarily of information regarding the number of companies with special tax status, the amount of taxes they paid as well as the number of jobs provided by these companies.
This analysis revealed some 24,000 companies currently enjoying a special tax status and which employ around 135,000 to 175,000 people. A significant share of these jobs and tax payments are attributable to around 3,900 “mixed companies”. All in all, KPMG estimates the tax base attributable to companies with special tax status as follows (Image, JPG):
Estimate showing three scenarios for the potential tax base which could be at stake if affected companies relocate to another country (figures in CHF million):
This clearly illustrates the consequences of a partial loss of the tax base on the Swiss economy in the event of a partial exodus of these companies. It can be assumed that a loss of just around 20% of the tax base mentioned could result in the loss of several billion francs in tax revenue and that this amount could considerably exceed the compensatory measures currently being debated among politicians. Given this situation, there is an urgent need for Switzerland to find an effective solution for CTR III that both safeguards Switzerland's tax appeal and is accepted with regard to both domestic and foreign policy.
Average cantonal tax rates for high incomes only saw a minimal 0.01 percentage point increase over the previous year. Here, too, the cantons of Central Switzerland top the charts: Among the cantonal capitals, the Canton of Zug is the undisputed leader with a tax rate of 22.86% followed by the cantons of Obwalden (24.30%), Appenzell Innerrhoden (25.34%), Nidwalden (25.49%) and Uri (25.55%).
In a European comparison, on the other hand, some Swiss cantons are ranked lower when it comes to income tax rates, particularly with an eye to locations in Eastern Europe: Switzerland thus ranks behind countries like Bulgaria (10%), Lithuania (15%) and Hungary (16%), as well as Ukraine, Estonia and Jersey (each 20%), or the Czech Republic (22%). And a glance across the continents shows a familiar picture: The zero taxation policies of Caribbean offshore domiciles and some Arabian countries have put these in the lead in terms of income taxes, followed by Russia (13%) and rival locations in Asia such as Hong Kong (15%) and Singapore (20%). All things considered, Switzerland only ranks in the midfield with an average maximum income tax rate of 33.99%.
The Swiss Tax Report is published on an annual basis by KPMG Switzerland. The current study reflects 130 countries and all 26 Swiss cantons. It compared the maximum effective corporate tax rates for companies (at the federal government, cantonal and municipal level) as well as the maximum income tax rates for individuals (at the federal government, cantonal and municipal level; no children, no religious denominations) for 2016 in the relevant national or cantonal capitals.
Media conference – slides (PDF, in German)
© 2018 KPMG Holding AG is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.