Swiss cantons forced to fish for multinationals with non-tax lures

When multinationals google "the best Swiss canton" in future, the results may show markedly different results. Keystone

Proposed changes to Switzerland’s tax rules could have a dramatic effect on which cantons remain attractive locations for multinational companies in future. As a result, factors such as the cost of premises or concentration of high tech facilities, will play a greater role, according to UBS bank.

Little has changed in the ranking of cantons by economic competitiveness since UBS conducted its last study in 2016. Zurich and Zug are still judged the best places for multinationals to set up shop while more rural cantons, such as Jura and Graubünden, bring up the rear.

But a radical overhaul of Switzerland’s corporate tax code, expected in the next few years, will most likely play a significant role, according to UBS’s latest Cantonal Competitiveness IndicatorExternal link report.

“According to current data, Geneva and Vaud would become considerably more attractive from a tax perspective, while the relative competitiveness of Zurich and Aargau would fall,” the bank states.

“The losers would be those central Switzerland cantons [such as Schwyz and Obwalden] that have lured companies to settle in them with aggressive low-tax policies.”

Innovation key

Switzerland has been forced by outside pressure to change its “harmful” tax rules that currently give preferential rates to many foreign companies with a Swiss base. A first attempt to overhaul taxes was rejected by voters last year. A new set of proposals is set to come into force from 2020 if they succeed at the ballot box. 

The stage is now set for mid- to low-performers St Gallen, Thurgau, Solothurn and Ticino to benefit from becoming cheaper places to set up business, says UBS. 

Cantons that have already attracted clusters of cutting edge technology specialists, such as Zug (blockchain) and Basel City (pharmaceutical and biotech), are tipped to exploit this advantage to an even greater extent relative to other areas. 

This also applies to lesser-known cantons such as Thurgau, Solothurn and Schaffhausen in northern Switzerland that have worked hard to diversify the types of industries active within their borders. 

UBS’s indicator measures the economic potential of Swiss cantons to foreign companies using eight criteria, including the cost of setting up business, availability of skilled labour and transport links.