On 18 June 2023, Swiss voters will choose whether to accept the government’s plan to raise company tax rates to a minimum of 15%.
The minimum 15% tax, which will apply to any company with annual revenues of Euro 750 million or more, has essentially been forced on Switzerland by the OECD as part of its plan to reduce global tax competition.
Nations with low tax rates are able to increase their tax bases by attracting foreign companies. But a tax base boost in one country represents a tax base loss in another. So OECD nations with high corporate tax rates have decided it’s time to tip the game in their direction.
The 15% minimum tax plan allows the OECD to collect any tax difference between 15% and any lower rate a country may chose to charge. This means any country failing to conform would give up tax revenue without providing any tax advantage to the companies it hosts.
What impact the higher rate will have on Switzerland’s economy is difficult to estimate. On one hand it will generate extra tax, however, on the other, Switzerland will lose some of its attractiveness as a place to base a business, which might cause some companies to relocate, especially given Switzerland’s high costs.
Currently, Switzerland’s main European competitor is Ireland, which has a headline corporate tax rate of 12.5%. But Ireland is being forced by the OECD to change too.
The average rate of company tax paid in Switzerland is around 13.5%. However, there is significant cantonal variation. The highest rate is 17.4% in Jura and the lowest is 9.4% in Nidwalden. The rates in Zug (9.6%), Basel-City (9.9%), Vaud (11.8%), Geneva (12.4%) and Zurich (15.7%) are in between these two.
The extra tax from the new 15% rate is estimated to be between CHF 1 and 2.5 billion. Switzerland’s current total corporate tax take is around CHF 14 billion. The extra money collected will be apportioned between the cantons where the companies are based (75%) and the federal government (25%). An argument for favouring the cantons over Bern is that the extra money can be used in other ways by the relevant cantons to hold onto the companies taking the biggest financial hits.
The two most heavily impacted cantons in German-speaking Switzerland will be Zug and Basel-City with around 400 and 250 affected companies. These two cantons have plans to directly support research and development and the environmental initiatives of the large companies affected. The head of finance in Zug told RTS that the canton plans to invest all of the extra tax money into the economy.
But before any money changes hands or any companies are nudged to leave, Swiss voters will need to decide whether to accept or reject the plan on 18 June 2023.