After nearly ten years of European Union opposition to preferential company tax deals, Switzerland’s government agreed in 2014 to do away with such arrangements. Under current rules Swiss cantons can offer preferential tax rates to certain companies, mostly multinationals with most of their activity abroad. In Geneva, these special rates mean certain companies pay tax at a rate of 11.7%, while all others must pay 24.2%.
The first step in the reform is for cantons to agree a new rate that must be applied to all companies. Neuchâtel was an early mover. It started reducing its company tax rate from 22.17% in 2012 and then to 15.61% in 2016. Vaud now has a plan to reduce its standard company tax rate to 13.79%.
On Wednesday, Geneva unveiled its new universal company tax rate: 13.49%. At the same time companies will be charged an extra 0.22% of payroll, something that could hurt a few companies with low profits and large payrolls, but that should bring in an extra CHF 60 million to the government, which it plans to spend on crèches, helping young people find apprenticeships, improving public transport, and helping older workers find employment.
The new rate of 13.49% will follow a slightly higher rate of 13.79%, which will be applied over the first five years from 2019.
The new tax rate will leave a big hole in the canton’s finances. Companies currently on special deals, are expected to pay an extra CHF 300 million, however, those paying today’s standard rate of 24.2%, are expected to contribute around CHF 800 million less, leaving a gap of CHF 500 million. After help from Bern, the gap will still be CHF 350 million. Geneva’s communes will have CHF 90 million less to spend too.
According to Geneva State Councillor Serge Dal Busco, the challenge of the tax reform is to get the balance right. An attractive standard tax rate is required to keep companies here. This has to be balanced with not losing too much tax revenue.
If everything goes to plan, the new laws will be agreed by the Grand Council, Geneva’s parliament will vote on them next spring, and the people will vote on the project in autumn next year. The new regime would then come into effect in 2019.
Geneva’s president, François Longchamp, told Le Matin that this reform, known as RIE III, is critical. Geneva’s economic future is at risk. Companies on these deals currently employ 22,000 people directly, 40,000 indirectly, and pay CHF 1.1 billion in cantonal taxes.