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News : Global Economy Last Updated: Feb 13, 2013 - 8:58 AM


Swiss tiring of foreign tax dodgers
By Michael Hennigan, Finfacts founder and editor
Feb 13, 2013 - 8:52 AM

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Switzerland's cantons enjoy extensive fiscal independence which has been actively used in recent years and has produced intense competition on taxes, according to Credit Suisse, Switzerland's second biggest bank. There can be substantial differences in the tax burden on private individuals and businesses from one canton to the next. The indicators calculated by Credit Suisse Economic Research to compare the various cantonal tax burdens show a picture of a divided Switzerland: intense competition and a tendency toward lower taxes in German-speaking Switzerland compared with higher taxes but an emerging trend toward more competition in French-speaking Switzerland. However, there is evidence that some Swiss are tiring of foreign tax dodgers.

Sedate Switzerland has faced turbulence in recent times over tax secrecy and the cost/benefit of servicing wealthy foreigners. The clash between the influence of the austere religious doctrine of Frenchman John Calvin who had taken refuge in the Alpine country, which centuries later hosted the plunder of foreign dictators or hidden the wealth of Holocaust victims, was a far cry from the gripes of the main character Michel, in the 1902 novel L'Immoraliste, of renowned French writer, André Gide: "I detest these honest folk. I may have nothing to fear from them, but I have nothing to learn from them either. And they have nothing to say...Oh, these honest Swiss. Where do their good manners get them?...They have no crime, no history, no literature, no art...They are like a sturdy rosebush without thorns or flowers."

Bank secrecy was protected by law in 1934, two years after a police raid on the Paris branch of Basler Handelsbank, which was caught 'in flagrante' facilitating tax evasion by members of French high society, among them two bishops, several generals, and the owners of Le Figaro and Le Matin newspapers.

Foreign firms that invest in Switzerland employ 11% of the Swiss workforce and contribute to 14% of GDP (gross domestic product), according to a 2012 Joint Study by the Swiss-American Chamber of Commerce and the Boston Consulting Group. The 23,524 tax-privileged companies resident in Switzerland in 2009 contributed 3.8bn francs (€3.1bn) - - around half of the total tax income from all companies in the country, according to the finance department.

Swiss official company tax rates of about 21% compare with 33% in France and 29% in Germany, according to a 2012 survey by accountants KPMG; however, actual rates are usually much lower.

Denknetz, a left of centre Swiss think-tank, estimates Switzerland's tax regimes deprives other countries of up to 36.5 billion francs (€29.6bn; $39 billion) in tax revenue each year  - - equivalent to double Spain's corporate tax revenues in 2011.

The European Commission has been criticising cantonal tax practices since 2005, seeing them as illegal state aid as foreign income is taxed at a lower rate than domestic income. It believes that these practices are contrary to the 1972 free trade agreement between Switzerland and the European Union.

The tax levy on corporate profit in Zug is 15% for ordinary companies and 8.8% for privileged companies.

According to swissinfo, from 3,900 companies offering 35,000 employments in 1975, "Zug is today home to more than 10,000 work places with over 83,000 jobs, according to the Office for Economic Promotion. Roughly 45% of these employers have less than two full-time employees. Even more significant is the number of registered corporations - - which may include pure letterbox companies - - which amounted to about 30,000 at the end of 2010, according to the registry of commerce."

Last week, swissinfo reported that  a poll in the local newspaper Bote der Urschweiz found that for 57% of voters in Schwyz, the population growth generated by the region’s appeal was a “curse.” Four years earlier, 55% had termed the increase as a “blessing”.
 
Population growth across Switzerland has been particularly pronounced. Since 1972, central Switzerland (Schwyz, Lucerne, Nidwalden, Obwalden, Uri and Zug) has seen its population grow by some 40%, according to the federal statistics office. Only the Lake Geneva region has registered higher growth of 41.5% across cantons Vaud, Valais and Geneva.

In Zug, a canton adjacent to Zurich,  - - home to commodity trader Glencore and mining company Xstrata, they have agreed to merge  - - some argue that expats are pricing locals out of the market. Voters in June backed an initiative to increase affordable housing.

In 2013, the public budgets of Schwyz and Zug are in deficit.

In January, head of the cantonal government in Zug, Beat Villiger told the NZZ am Sonntag newspaper, that it was time to put the brakes on growth by placing a limit, for example, on the number of new arrivals. Villiger said the government wanted to halve arrivals from 22,000 until 2030, to 11,000.

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