Here’s why Switzerland may not go for a minimum corporate tax rate

In this Feb. 19, 2010 file photo, an exterior view of the Nestle headquarters in Vevey, Switzerland.
In this Feb. 19, 2010 file photo, an exterior view of the Nestle headquarters in Vevey, Switzerland. Copyright Dominic Favre/AP
By Indrabati Lahiri
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Switzerland may now be turning back on a minimum corporate tax rate, proposed by the OECD.

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Back in June this year, Switzerland set an example for other wealthy European countries, by vocally supporting a minimum corporate tax rate, suggested by the Organisation of Economic Cooperation and Development (OECD). The tax rate was expected to be around 15% at the time.

The Swiss overwhelmingly supported the tax rate, with approximately 78.5% of voters in favour, marking the sixth-highest approval rate in two decades for a market-changing issue.

However, Switzerland could now potentially be getting cold feet, with increasing appeals for the tax reform, which was originally supposed to go live on 1 January next year, to be delayed. 

Its hesitancy could very well be due to the country already being very comfortable with its “tax haven” reputation.

Some cantons, like Zug, have a corporate tax rate as low as 11%, which naturally attract a number of global corporate giants, such as commodity trading company Glencore. Other major Swiss firms include food and drink company Nestlé with its headquarters in Vevey, whereas watch manufacturer Rolex is based in Geneva and UBS bank is split between Zurich and Basel.

Increasing the minimum corporate tax could prompt these companies and several others to look for homes elsewhere, potentially fundamentally changing the fabric of the Swiss economy, which has stayed strong for decades.

Not only this, if Switzerland loses its tax haven status, it may experience a plunge in both individual and corporate funds from overseas in its offshore bank accounts. This could pose a potential threat to the strength of its financial and banking sector.

Although the country has already abolished several forms of tax relief in response to criticism of its lax corporate tax rates, many still don't consider the measures enough.

Which other countries may be having second thoughts?

Switzerland’s turnaround comes as several other countries, such as the US, India, China, Hong Kong, Singapore, Brazil and the UAE, amongst several others, are also hesitating over whether to implement the OECD deal in 2024. This has led to increasing calls for it to be postponed by at least a year.

As it turns out, only about 25% of the original 138 OECD countries partaking in the deal are on track for the 2024 plan. These include Canada, Japan, South Korea, Australia, and EU member states.

Another concern for Switzerland to hold off is that if other countries do not go for the minimum tax rate, they could very well end up having lower taxes than Switzerland. 

As a result, several of the disgruntled companies leaving Switzerland could potentially move to these countries, akin to “giving away millions”.

A decision on whether the 2024 tax plan will progress as intended should be made in the next few weeks.

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