Higher corporate taxes, but state wage subsidies for management? This is how Switzerland can apply the new minimum tax
After bank secrecy ends, the next tax revolution will follow. Global minimum corporate taxation could soon become a reality. Much remains uncertain. But in Switzerland people think about the consequences. She wants to do better this time.
What a contradiction! Then-Finance Minister Hans-Rudolf Merz said in the spring of 2008: “Those who attack Swiss banking secrecy, I can expect: you will still stick to this bank secrecy.” A year later, Merz and his Federal Council colleagues presented in. The distinction between tax evasion and tax fraud has been abandoned. Since then, banking secrecy is a thing of the past, at least for foreign clients.
Another tax revolution is looming – this time under the auspices of the OECD and its most powerful members: the G20 and G7. However, the story of the plump Swiss, who then has to finally give up, should not be repeated. “We have no choice,” sighs a liberal politician. The fact that a universal minimum corporate income tax could soon be introduced no longer bothers anyone in the Bundestag. “Uli Maurer is liquidating the tax haven of central Switzerland,” former Socialist Party chairman Peter Bodenmann said recently in his “Weltwoche” column.
Indeed: Finance Minister Maurer and Foreign Minister Daniela Stoffel of the State Secretariat for International Finance (SIF) have sent signals of cooperation to OECD headquarters from the start and have been repeating the same message for years: “Switzerland calls for – in the long term and on a large scale – Multilateral solutions are instead based on many confusing national procedures.” In other words: a better global solution implemented by all than the proliferation of private national tax trains. An assessment shared by companies, too.
Ueli Maurer reacts calmly
Thus the Ueli Maurer finance department reacted soberly to the decisions taken in London. “We’re noticing it,” communications director Peter Minder says simply. The agreement was not surprising, as the Social Investment Fund has been accompanying tax reform for years – and is in close contact with cantons, companies and business associations. “We can deal with what is being discussed now,” Maurer said at the beginning of April following the virtual spring meeting of the IMF, World Bank and G-20 finance ministers. The United States under Joe Biden’s government was seeking an agreement. “Switzerland also has other trumps as a location if the tax advantage goes down.”
But you don’t want to rely on that alone. For example, Frank Marti of the Economistois points out that wages are high in Switzerland. The cost factor is offset by low taxes yet.
The preparations in the finance department are therefore in full swing, and several models are being evaluated to see how other businesses will accommodate. Nothing is ready to be announced yet. But a look outside shows where the trip might go. Other countries may have higher tax rates than Switzerland, but they support companies directly – for example through contributions to research and development, more training, with exemption from social security or even with wage subsidies for management. Discussing such compensation is imperative, says Council of States, Eric Eitlin (center/OW).
15 percent for all
The Group of Seven countries agreed to a minimum tax rate of 15 percent. Two-thirds of the cantons have a lower corporate tax burden. The FDP’s Graubünden State Council, Martin Schmid, is concerned about this. He fears, above all, job losses if Switzerland loses its tax advantage. However, much remains open regarding the fix. Therefore, not only the amount of the minimum tax rate is decisive, but also the tax basis. And what taxes or fees are taken into account when determining the minimum tax. Are capital taxes or withholding taxes taken into account? Or even the carbon dioxide tax that Swiss companies have to pay? Finance Minister Ueli Maurer put this idea into practice at the beginning of April.
The good news for Switzerland is: The minimum tax rate will also apply in the future in competitive, low-tax locations such as Luxembourg, the Netherlands and Ireland. Tax competition is restricted. This makes other location factors more important, such as qualified personnel, wage costs, infrastructure, flexible labor law, access to authorities, and stability or legal security. Accordingly, “The lower tax rate of 15 per cent is manageable in Switzerland,” says the Basel Council of Southern Sudan and former CFO Eva Herzog. The economy appears to be preparing for that, she says, noting that there is already a call for compensation in other areas, such as exemption from Social Security contributions.
However, such support would be a paradigm shift. Whether this will be able to win a majority is at least disputed.
Companies already pay higher taxes on a voluntary basis
Obviously, the minimum tax only affects large corporations. So there will be two different tax rates, one for large companies with a turnover of more than 750 million euros and one for everyone else. Or in other words: everything remains the same, only adults “voluntarily” pay the difference to the required 15 percent.
This idea is not revolutionary, but it is already practiced in some cantons in Switzerland. There are companies that voluntarily allow themselves to charge higher taxes so that they are not charged additional taxes in their home country. In Sweden, for example, minimum taxes already apply today.
However, the implementation process is unlikely to be easy. It is also unclear who will impose the additional taxes, the cantons or the federal government. So a lot is open. Only one thing is clear: the world of taxation in Switzerland is becoming more complex.