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11/12/2008Switzerland scraps foreign-based firm status

New reform to defuse EU row will mark the end of lower tax rates for 10,000 so-called foreign based companies.

GENEVA – The Swiss government on Wednesday announced plans to abolish a status accorded to some foreign firms that offers fiscal benefits, in a bid to defuse a row with the European Union.

However, it stressed that the country's cantons did not flout a free trade agreement with the EU by offering fiscal advantages to the companies, as claimed by the bloc.

It added that it "categorically rejects negotiations with the EU on fiscal matters".

"The Federal Council is convinced that these measures will have a positive impact on growth and strengthen Switzerland's position in international tax competition.

"At the same time, they take into account the concerns raised by the European Union within the scope of the tax disagreement," said the Finance Ministry in a statement.

"Our goal is to make Switzerland competitive. One of these is to make the Swiss tax system acceptable internationally," Fabian Baumer, Vice-Director of the Federal Tax Administration told AFP.

There are several kinds of companies in Switzerland, including so-called foreign-based companies, which have no business activities here or which only perform management functions here.

Foreign-based companies pay a lower tax rate for cantonal profit and capital taxes.

Under the reform, the status of these foreign-based companies, currently numbering about 10,000, would be abolished.

This means that they would no longer be subject to a preferential tax rate. Rather, they would be subject to "ordinary taxation," explained Baumer.

These plans would be drawn up in a consultation paper, along with proposals by the government to abolish some stamp duties, which is estimated to result in a tax shortfall of up to CHF 500 million for the Confederation, the Finance Ministry said.

Under the plans, stamp duties on equity and debt capital would be scrapped.

Equity capital stamp duty is levied from a company when it issues or trades in shares. Debt capital stamp duty is levied when a company issues bonds and equivalent debt instruments.

[AFP / Expatica]


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