In an intercantonal comparison of the taxation of individuals and legal entities, the Canton of Bern has been one of the nation's lowest-ranked cantons for several years. Along with national Tax Proposal 17 as well as the pending revision of cantonal tax law comes an opportunity for the canton to significantly boost its attractiveness as a location.
In the Bern Tax Monitor 2017, KPMG Switzerland and the Trade and Industry Association of the Canton of Bern (HIV) have jointly analyzed the taxation of individuals and legal entities in the Canton of Bern with an eye to national Tax Proposal 17 (TP17). “The past year has not brought any noteworthy changes with regard to individuals,” explains Hans Jürg Steiner, Head of Bern-Mittelland Market Region at KPMG. “The situation for legal entities is similar, however the proposal provides for at least one gradual reduction in the corporate tax burden plus a shift from a three-bracket to a two-bracket progressive tax rate.” The gradual reduction in the corporate tax burden and the change from a three-bracket to a two-bracket progressive tax rate will be implemented regardless of the outcome of TP17. Bern’s governing council will reassess the situation in 2021.
While a large number of the cantons have reduced their corporate tax rates over the past ten years, Bern has kept its at a steadily high level – leaving the canton unable to compete with the tax rates found in other cantons. In its report to the Cantonal Parliament on the fiscal strategy of the Canton of Bern, the governing council proposed a gradual reduction in the maximum corporate tax rate from the current level of 21.6% to 16.73% between 2019 and 2022. The three-bracket progressive corporate tax rate currently applied in the Canton of Bern is to be replaced by a two-bracket rate.
Only a few initial steps toward a reduction in the corporate tax rate to 18.71% in 2019 and 2020 are planned for the 2019 cantonal tax law revision. The rest of the measures, as well as other steps related both to cuts in the corporate tax rate and a reduction in the capital tax rate, will be addressed within the scope of a future tax law revision (presumably 2021). Under the Federal Tax Harmonization Law, the cantons are required to levy a capital tax. Despite the fact that the Canton of Bern’s capital tax remains appealing, particularly since it can be claimed as a tax credit on corporate tax, the canton’s fiscal strategy had foreseen a change in the regular rate from 0.3‰ (current) to 0.1‰ beginning in 2019. For now, however, this change has been abandoned in the 2019 tax law, even though the reduction is necessary since previously tax-privileged companies would have to pay significantly higher capital taxes if this tax status were to be eliminated.
Given the Canton of Bern’s comparatively high tax burden, namely across the board and at every income level, from low to high, this canton is also one of the lowest-ranked for individuals. While adjustments have been made to maximum income tax rates throughout Switzerland, with just a few exceptions, rates in the Canton of Bern have remained consistently high over the past ten years. A new limit on commuter tax deductions for employees who live in the canton and commute to work changes their situation for the worse. The tax situation of property owners has deteriorated, as well, along with the general increase in imputed rental values which took effect in 2015.
The number of very-high-income taxpayers in the Canton of Bern is low. Thanks to a relatively moderate wealth tax rate (and the “wealth tax ceiling”, in particular), the canton has at least succeeded in remaining interesting for a few extremely wealthy taxpayers. The 2019 tax law revision does not provide for any changes with regard to individuals and individual taxation will only be a priority of the tax law revision of 2023 at the earliest according to the governing council. Given the Canton of Bern’s great dependency on tax revenue from individuals, as evidenced by the canton’s revenue structure, improving the tax situation of individuals will be more difficult whereas improving the situation for legal entities would be simpler.
Two trends stand out for the planned reduction in corporate tax rates (as of 2020): On the one hand, some cantons are aiming for an extremely low regular tax rate of between 12% and 15% while also limiting potential advantages through the application of other fiscal measures from TP17; on the other hand, some cantons, including Bern and Zurich, have their sights set on a higher regular tax rate of between 15% and 20%, yet are interested in additional tax deductions provided for within the scope of TP17 (i.e. patent box, R&D, interest-adjusted corporate tax rate).
The momentum in corporate taxes, which has taken hold in nearly every canton and will accelerate as TP17 is implemented, is also proving challenging to the Canton of Bern. “Legal entities are clearly the group where action is most urgently needed,” says Kurt Rohrbach, Chairman of the HIV. “With labor and capital becoming increasingly mobile, the tax burden of legal entities is a critical factor in companies' choice of location. Unless changes are made, the situation surrounding both national and international tax competition will intensify even further, and it will do so at the expense of the Canton of Bern.”
The 2019 tax law revision provides for a gradual reduction in the corporate tax rate for legal entities, spread out over the next few years. “While the HIV generally welcomes a gradual approach, a reduction to 16.37% over the course of five years doesn’t seem adequate enough to shift the Canton of Bern back to the mid-field in terms of cantonal tax competition and prevent the canton from losing any companies,” explains Adrian Haas, Director of the HIV, who goes on to say: “The 2019 tax law revision is solely focused on legal entities. Even the 2020 tax law revision doesn’t contain any relief for individuals. On the contrary: The recent elimination of the flat rate deduction for professional expenses, the limit on commuter tax deductions, and the increase in imputed rental values have exacerbated the situation.”
Media conference – slides (PDF, in German)
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