2021 saw radical changes to the tax system in Switzerland, according to a new report by KPMG. Over the last year, business taxes and tax rates for high-income earners have declined, as the country prepares to join the OECD's minimum corporate tax scheme.
The study found that three Swiss cantons - Valais, Aargau and Jura - cut corporate taxes for the highest earners in 2021. The cuts ranged from 1 to 1,6 percent over the last year, which equates to thousands of francs in savings for each canton's richest residents.
According to the KPMG analysis, 18 of the 26 cantons have a corporate tax rate lower than the 15 percent minimum global rate agreed by the OECD. The rate, due to be implemented in January 2023, is an attempt to standardise corporate tax rates globally to stop the rise of tax havens.
If these cantons don’t raise their corporate tax rates to the 15 percent threshold, and if the federal government also fails to act, the difference could be taxed by another OECD member. This would lead to a 1 to 2,5 billion franc tax loss for international companies and the Swiss state, according to KPMG.
Switzerland is due to follow the OECD recommendation and raise corporate tax rates to a minimum of 15 percent by the end of 2022. This poses a serious issue for cantons like Zug and Nidwalden, who have some of the lowest business tax rates in the world and will likely lose some of their investor appeal if taxes are raised.
To remain attractive to wealthy residents, many cantons have started to cut personal tax rates to compensate for the OECD plan. According to KPMG, 12 cantons have cut taxes for the highest earners in the last year, with Schwyz (-1,5 percent), Schaffhausen (-1 percent), Thurgau and Lucerne (-0,6 percent) cutting the most.
In concluding their report, KPMG said that it was up to Switzerland, and other low-tax nations like Ireland and offshore states, to make themselves more attractive to investors. Without the historically low taxes that Switzerland is famous, or infamous for, the government and the cantons need to find new ways to attract investors to the alpine nation.