Swiss ratchet up tax breaks as Europe fights deficits

Schaffhausen is one of 26 Swiss cantons offering tax deals to attract hedge funds, biotechnology firms and Internet entrepreneurs, and companies fleeing tax havens such as the Cayman Islands that are encountering international pressure, says Bloomberg.

Low corporate taxes will help Switzerland attract business, but it's also creating tension as European governments seek revenue to plug their fiscal deficits, says Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin.

Switzerland reported a fiscal surplus last year, and cantons from Zurich to Schwyz are lowering taxes:

Tyco Electronics, which has had operations and manufacturing sites in Switzerland for about 25 years, has more than 1,000 employees in four other cantons including Zurich and Ticino.

Swiss corporate tax rates, including a federal rate of 8.5 per cent, range from 11.8 per cent in the town of Pfaeffikon in Schwyz to 24.2 per cent in Geneva, according to tax consultant Mattig-Suter & Partner.

Compare this with a corporate tax rate of 28 per cent in the United Kingdom and 35 per cent in the United States.

Thousands of companies bolster earnings by attributing income to subsidiaries in countries with lower tax rates, legally cutting their costs with a technique known as transfer pricing, says Bloomberg.

Ineos, the world's third-largest chemicals company, said in March it aims to save about 450 million euros ($547 million) in taxes over four years by moving to Vaud.

Companies relocating to Switzerland negotiate through accounting and law firms to obtain a tax ruling from cantons, which make offers with the expectation that new arrivals will create jobs.

"You come here to enjoy the quality of life and low taxes, but in return you must help develop new industries and hire new people," says Brice Thionnet, a Geneva-based lawyer who specialises in corporate and tax structuring at Baker & McKenzie.

Source: Carolyn Bandel and Dylan Griffiths, Swiss Ratchet Up Tax Breaks as Europe Fights Deficits Share, Bloomberg, June 3, 2010.

For text: http://www.bloomberg.com/apps/news?pid=20601109&sid=aDL4y9zxGnyU

For more on Taxes: http://www.ncpa.org/sub/dpd/index.php?Article_Category=20

First published by the National Center for Policy Analysis, United States

FMF Policy Bulletin/ 08 June 2010