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Switzerland plans grants to offset G7 tax plan

Swiss-based multinationals such as commodities trader Glencore will receive subsidies and other incentives as part of plans Switzerland is making to keep its tax rates competitive, even as the country prepares to join the new G7 plan for a global minimum tax on large corporations.

Bern consults with its cantonal governments – which set their own corporate tax rates – to examine how measures such as research grants, social deductions and tax credits could create a “toolbox” to compensate for any changes overall tax rates, officials told the Financial Times. .

The proposed Swiss measures are another sign of the difficulty in implementing the G7’s commitment to an overall floor of 15 percent on corporate taxes. Multinationals based in the Swiss canton of Zug, for example, are currently taxed locally at just under 12%.

“Our clear goal is that Zug will remain among the locations with the most advantageous and internationally accepted tax rates in the future,” said Heinz Tännler, Zug Minister of Finance at FT. “Our people have proven time and time again that they are aware of the. . . international business needs for favorable terms.

Despite a population of just 8.5 million, Switzerland is home to some of the world’s largest multinationals, such as Nestlé, Novartis, Roche and ABB. Currently, 18 of the 26 Swiss cantons currently levy less than the minimum of 15 percent proposed by the G7.

The country is the most important jurisdiction in the developed world for low corporate tax rates, with an economy larger than any other low-tax European country – such as Ireland, Hungary, Bulgaria and Cyprus – combined.

Swiss-based multinationals such as Glencore will receive grants to keep tax rates competitive © Gianluca Colla / Bloomberg

Economiesuisse, the body that represents Swiss companies, estimates that up to 250 companies based in Switzerland could be affected by the new rules proposed by the G7.

“There are still a lot of open questions about this agreement,” said Christian Frey, deputy director of taxation at Economiesuisse. “But Switzerland will certainly be more affected than the other countries.” He added: “Fortunately, there is a whole list of things we could do. We are convinced that we can compensate.

Many Swiss officials are reluctant to suggest that their country is a tax haven, where companies only park their headquarters for tax arbitration. They point out that many multinationals based in Switzerland are of Swiss origin and employ a significant local workforce.

Yet the G7 initiative, if adopted globally, will be the latest radical rule change imposed by the international community on Switzerland. Since the 2008 financial crisis, the country has faced increasing pressure to overturn its strict bank secrecy laws and toughen its liberal tax regime.

Although both issues are deeply rooted in the country’s identity, Berne has recently adopted a more openly conciliatory stance towards tax reform, believing that it has more to gain through compromise than through principled stubbornness. Last year, a federal tax reform law came into force, bringing national corporate tax rules into line with OECD standards.

Where possible, however, Switzerland has acted nationally to safeguard its successful economic model.

A federal technical task force is studying how to mitigate tax hikes, Frey said. Large companies are also consulted in the various cantons on the measures that could make the difference to offset the rise in taxes. Analysts say that among the questions to be resolved is whether the subsidies would comply with World Trade Organization rules.

Most of the largest Swiss companies based in low-tax cantons contacted by the FT, including Glencore, declined to comment on the changes proposed by the G7. Spokesmen for Roche and Novartis said it was too early to be able to assess the impact of the new rules.

At Nestlé, a spokesperson said the company already pays taxes in 150 countries around the world, with an overall effective rate of 24%, well above the 14% rate in the canton of Vaud, where it has its seat.

A new international tax framework will need a “strong agreement among all countries” to be successful, added Nestlé. “It must be consistent, provide certainty. . . and avoid double taxation.

Taxes, Frey pointed out, are also just one part of what makes Switzerland an attractive place to trade. “We have an open labor market, a highly skilled workforce, very good educational and research institutions and excellent infrastructure,” he said.

Nevertheless, the stakes are high. Corporate tax contributes significantly to federal and cantonal revenues. In the canton of Basel-City, for example, which has 201,000 inhabitants as well as the pharmaceutical companies Roche and Novartis, 20% of government revenue – around 600 million Swiss francs per year – comes from corporate income tax.

“Large international companies are very important for our canton,” said Sven Michal, secretary general of the Basel-City finance department. “We’re not a place where there are a lot of brass plate companies. The businesses that we have here employ a lot of people and pay a lot of taxes.

Reform is “inevitable,” he said, but the federal government will need to be smart to help minimize the impact of the new changes.

” We prepare ourselves. The most important message is that we want reform that will keep employees and incomes here. That’s the point.

Additional reporting by Chris Giles in London

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