Business leaders call for sweeping tax reforms

Low corporate tax rates have traditionally been a feature of the Swiss landscape. swiss-image.ch

Business leaders say Switzerland must react rapidly to the growing phenomenon of cross-border “tax competition” or risk being left behind.

The Swiss business federation, economiesuisse, issued the warning at a conference on Friday, called to promote a comparative study of tax regimes described as the first of its kind.

Co-author Pascal Gentinetta said the study showed that international taxation – particularly corporate taxes – had become an “extremely dynamic, fast-changing field” and that Switzerland could no longer afford to simply defend existing advantages.

“We realised several years ago that there is a lot happening on this front, so we carried out a systematic study of important reforms in this area, both in EU [European Union] countries and in other OECD [Organisation for Economic Cooperation and Development] member states,” Gentinetta, a member of the economiesuisse management board, told swissinfo.

“Many countries are engaging in often very ambitious reforms of their taxation systems, and we found that, while the Swiss position is not so bad comparatively, it is clearly lagging behind to a certain extent.

“As a result, the comparative advantages that Switzerland has traditionally enjoyed are tending to diminish, particularly compared with the dynamic eastern European countries, not to mention Austria and Ireland.

“Switzerland needs to act now to address these developments, some of which give cause for grave concern, and we have therefore come up with a list of proposals for reform.”

First-of-a-kind study

The study, “Competition and Dynamism in Tax Policy – an international comparison of major reforms and their lessons for Switzerland”, provides a systematic overview of significant trends and reform programmes in the field of international taxation.

Economiesuisse said that, to the best of its knowledge, the study was the first of its kind to explore in such depth the entire field of comparative international fiscal policies.

The report, which considers the Swiss tax model in the international context, reveals a growing need for rapid action.

It does not signal a fundamental shift in the business community’s stance on tax policy, but simply makes an objective assessment of the international status quo and highlights those areas where Switzerland in particular must act, according to economiesuisse.

The business federation said it was not part of the authors’ mandate to evaluate the detailed costs of implementing the proposals, adding that the aim of the proposals is to serve as a basis for step-by-step reforms, rather than overnight change.

Policy paralyis?

The report points out that while Switzerland has several major reform projects on the domestic political agenda, the rejection of proposed tax reforms in a nationwide vote last May illustrates the growing risk of “tax policy paralysis”.

To keep pace with international competition, it says Switzerland must “play to its strengths” and make “targeted use of its tax autonomy” in the light of international developments.

Given that reforms as radical as those already introduced in some EU member states would “not be possible” in Switzerland, it suggests that implementation should proceed in consistent stages, taking account of the country’s unique political structure.

The study says government spending has increased more rapidly than in any other OECD country, and no effort must be spared to reduce this as a percentage of gross domestic product.

The federal taxation system – unique with the exception of the United States – promotes inter-regional “tax competition”, but needs to be made more efficient (for instance, by avoiding “redundancy” at the cantonal level).

Double jeopardy

In international terms, Switzerland’s personal income tax regime is “no more than average”, and varies considerably from canton to canton. Reforms are proposed in the areas of family taxation, shareholder taxation and tax rates.

The report concludes that Switzerland’s “lead” in the area of company taxes has shrunk in recent years. Tax rates send a “clear signal” to investors, so Switzerland should act to cut these taxes further.

The elimination of “economic double taxation” of shareholders’ capital and wealth is also identified as a matter of urgency, if Switzerland is to fall into line with the majority of OECD countries.

Economiesuisse says Switzerland should continue to offer tax advantages to multinationals and any measures that cause serious harm in this respect – for instance, securities transfer tax – should be completely dismantled.

However, Switzerland’s low VAT rate constitutes a “considerable competitive advantage” that should not be lost “on any account”.

swissinfo, Chris Lewis

Key facts

The report says any changes to the corporate tax system should aim to maximise “growth effects” – both for individual firms and the economy.
It calls for action to guarantee the competitiveness of financial services and international companies in Switzerland.
The report also proposes changes to the VAT system, but opposes increasing VAT levels.

In brief

Economiesuisse says cross-border “tax competition” is evolving so rapidly that Switzerland risks being “left behind” internationally.

A new – possibly unique – report compares the Swiss system in international terms and proposes major reforms.

However, it says changes should be introduced gradually, and does not evaluate implementation costs.