Switzerland responsible for $13 billion in losses to tax evasion globally

Bermuda came in third on the Tax Haven Index, just after the British Virgin Islands and the Cayman Islands. Switzerland came in fifth. Keystone / Cj Gunther

Switzerland benefits from tax abuse by companies and individuals to the tune of around $12.8 billion (CHF11.9 billion) according to a new global ranking. However, it also loses out on $5.7 billion in revenue.

According to an analysisExternal link by the Tax Justice Network published last week, Switzerland comes in fifth in the Corporate Tax Haven index, which captures how intensely a country’s tax and financial systems allow multinational corporations to shift profit out of the countries where they do business.

The fifth-place ranking puts Switzerland in what the NGO refers to as the “Axis of Tax Avoidance” along with the UK (with its network of Overseas Territories and Crown Dependencies), the Netherlands, and Luxembourg. The top five jurisdictions are responsible for half of the world’s corporate tax abuse risks.

“The world’s richest countries are depriving the rest of the world of $166 billion in corporate tax every year by enabling the biggest multinational corporations to pay less tax than they should,” said Liz Nelson, director of tax justice and human rights at the Tax Justice Network in a press release.

Switzerland alone is responsible for 5.1% of global tax avoidance losses. As reported in the SonntagsZeitungExternal link, of the $12.8 billion, about $10.95 billion is the result of multinational companies moving profits to Switzerland to pay lower taxes. Another $1.89 billion come from wealthy private individuals who move their money to Switzerland for tax reasons.

Countries in Africa and Eastern Europe are particularly affected by tax evasion in Switzerland including Burundi, Rwanda and Ghana.

Other side of the coin

Switzerland is also a victim of corporate tax abuse. It loses some $5.68 billion a year as a result of tax avoidance. That is equivalent to the salaries of 74,699 nurses, according to the Index.

Around $881 million is due to corporate tax abuse but the lion’s share (around $4.8 billion) is a result of wealth individuals moving funds to tax havens. The main beneficiaries of Switzerland’s losses are the Netherlands (33.2%), Luxembourg and the US.

The ranking and figures are based on a reportExternal link released by the NGO last November, which found that the world loses $427 billion in tax a year to international tax abuse. This is equivalent to losing around 9.2% of health budgets to tax havens or 34 million annual nurses’ salaries every year.

In light of the findings, the NGO is calling on new rules to be set at the UN instead of by a “small club of rich countries behind closed doors,” taking aim at the policy discussions on tax abuse taking place at the Organization for Economic Cooperation and Development.

Signs of progress

The country has improved in some areas. Switzerland was the third biggest enabler of financial secrecy in the world, marking the first time the country did not rank first in terms of financial secrecy since 2011. The report notes, that this reduction means less room for “money laundering, tax evasion and huge offshore concentrations of illicit and untaxed wealth”.

There have also been moves to end corporate tax perks. In 2019, the Swiss voted in favour of corporate tax reform that included scrapping preferential treatment for multinational firms.

The German-language paper NZZamSonntagExternal link also highlighted improvements in tax avoidance of wealthy individuals. For decades, cantons would compete to woo the rich with lower tax rates. There remain huge differences in tax rates across cantons. For example, the paper reports that a family of four with a gross income of CHF100,000 pays CHF8,830 in taxes in Bern compared to only CHF870 in Zug.

However, a new study from the University of Bern finds that for the first time in decades, the rich are paying higher tax rates again. Since 2009, the lowest tax rate nationwide for a single household earning CHF1 million has risen from 17 to 20%. 

The NZZamSonntag points to a few reasons including the fact that some cantons or cities ran into financial problems because of their aggressive tax policy. Some areas also ran out of properties to attract newcomers.

There may be another reason at play that is exemplified best by tennis star Roger Federer and his move from a lower tax region to a large house on Lake Zurich. “Just as Roger Federer is now moving to the more expensive Rapperswil, other rich people also forego the tax discount if they get a better quality of life in return,” writes the paper.

Correction: Note a previous version of this story incorrectly stated that the $427 billion lost to international tax avoidance is equivalent to 33 billion annual nurses salaries. It is equivalent to 34 million annual nurses salaries.