Swiss Treasury claimed that the country could lose up to CHF10 billion of tax revenues which includes cantons and municipalities taxation. The lose caused by changes in corporate taxation rules to capture a larger share of taxes of multinationals based in tax-friendly destinations like Switzerland.
The international comparison shows that Switzerland is a very attractive location for corporate tax payers. Switzerland is a stable, liberal country with a business-friendly environment, relatively low corporate income tax and an extensive double tax treaty (DTT) network. Referring to the recent tax reform, Current tax incentives include IP boxes, R&D deduction, and lower rate of income tax for the cantonal taxational rates.
Countries which are member of OECD and G20 oblige are pushing for changes in corporate taxation rules to capture a larger share of taxes of multinationals based in tax-friendly destinations like Switzerland. They want companies to pay taxes where they generate their sales and not just where they are located. Further, the member of BEPS inclusive framework also to take measure to subject all the companies to minimum tax. The measures were adopted in the latest OECD proposal in Digital Economy and laid out earlier in the BEPS actions plan.
The plan to realocate the taxing right to the market jurisdiction is forecasted to cause the lose of tax revenue for Switzerland, CHF1.5-10billion. To illustrate the forecasted lose, swiss’ treasury using pharmaceutical company as an example. For instance, Novartis as a company engaged in pharmaceutical industry achieved global sales of just under CHF51 billion, of which only 2% was generated in Switzerland. Conversely, Novartis paid a total of CHF 1.8 billion in income taxes, 39% of which were in Switzerland. If Novartis were hypothetically taxed entirely according to where the sales were generated, Switzerland would only net CHF36 million instead of the CHF700 million it gains now.
It is worth to note that companies located in Switzerland merely seeking the benefit of tax residence provided by the countries, however most of their profits are most likely generated abroad. Thus, the global tax reform which realocate the taxing right would hit Swiss so hard. To cope with the issue, the government will coordinate with the potential losers like Netherlands, Ireland, Luxembourg and the Scandinavian states, as well as Canada and Singapore to find alternative solution.