Global minimum tax viewed critically by Swiss companies
A global minimum tax is seen by internationally active companies as a threat to Switzerland's competitiveness. This is the result of a survey conducted by the auditing firm Deloitte. To compensate for the resulting additional tax revenues, most of the tax managers surveyed at the companies suggest abolishing the withholding tax.
In mid-2021, under the aegis of the OECD, 130 countries agreed on the broad outlines of new international tax rules. They are to be implemented from 2023 - including in Switzerland. This is currently fueling the discussion about Switzerland's attractiveness as a tax location. After all, an attractive business location is naturally very important to internationally active companies. When it comes to investments and location decisions, the tax managers of these companies have an important say.
Global minimum tax as a threat to competitiveness
In this context, the auditing firm Deloitte surveyed a total of 49 Head of Tax / Senior Tax Professionals of listed and private multinational companies with strong business ties to Switzerland between September and mid-October 2021. More than a quarter of the tax heads of these companies definitely see the introduction of a global minimum tax rate as a threat to the competitiveness of Switzerland as a business location. For half of the respondents, the reform tends to be a threat. Only 14 percent of respondents assume that competitiveness will not be impaired by a global minimum tax.
an opportunity for competitiveness? (Graphic: Deloitte)
However, some tax officials would also see opportunities in the tax reform initiated by the international community, the study nevertheless notes. "A global minimum tax would reduce Switzerland's tax advantage over countries such as Germany, France or the USA by only a few percentage points. On the other hand, however, the tax advantage of countries such as Ireland, Hong Kong, Malta, Cyprus or Dubai will decrease or disappear," explains Reto Gerber, Head of Tax at Deloitte Switzerland. "This could lead to companies relocating tasks currently located in low-tax locations to Switzerland."
Taxes not the most important location factor
Deloitte also asked about the impact of a minimum tax rate on eight different corporate functions. According to the survey, financial functions, production, and research and development are under the most pressure: Around 40 percent of respondents anticipate a negative impact of the global minimum tax on these corporate functions in Switzerland.
This is all the more significant because the companies consistently see Switzerland as their preferred international location for all the corporate functions surveyed, the study authors write. "The respondents are very familiar with Switzerland as a business location. It is therefore a good sign that they consider it so attractive compared to other countries such as the United Kingdom, Singapore, the Netherlands or Ireland," says Gerber. However, the tax environment is by no means the most important location factor: According to the results of the Deloitte study, political stability, a functioning infrastructure and a high quality of life rank right at the top. But the business-friendly authorities and the geographical location are also apparently more important to internationally active companies than taxes, as the survey also shows.
Abolish withholding tax
Corporate tax executives would like to see the withholding tax on investments abolished in return for the introduction of the global minimum tax. With a rate of 35 percent, Switzerland has one of the highest taxes on dividend distributions and interest income in the world. There is also broad support for support for research activities or the reduction of social security contributions.
"The abolition of withholding tax would be a win-win solution and would give the economy an additional boost within a few years," explains Reto Gerber. On the one hand, this would make direct investments in Swiss companies easier and more favorable, and on the other hand, Switzerland would become more attractive as a marketplace for outside capital. "The Council of States has it in its hands and can pass the bill to abolish the withholding tax in the upcoming winter session," says Reto Gerber.
Digital companies in our sights
However, Switzerland is threatened with even more trouble as a tax location: While the global minimum tax increases the worldwide tax pie, it is to be distributed differently under the second pillar of the new OECD regulations. This would have a particularly negative impact on the subsidiaries of large corporations. "New businesses in Switzerland would be less attractive, and there would be a threat of further bloodletting among companies already based there," explains Reto Gerber.
"Taxes will remain a relevant location factor when it comes to locating corporate functions in Switzerland even after the introduction of the global minimum tax, even if not all companies emphasize this so openly," says Deloitte's CEO Reto Savoia. "Accordingly, there is a need for sensible compensations such as the abolition of withholding tax. At the same time, intercantonal tax competition must not be restricted under any circumstances, and we must also take care of the good relationship between taxpayers and tax authorities."
Source and further information: Deloitte
