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Attracting multinationals


Geneva slashes corporate taxes to appease critics




European Union Competition Commissioner Margrethe Vestager accuses Ireland of giving Apple illegal tax benefits. (Keystone)

European Union Competition Commissioner Margrethe Vestager accuses Ireland of giving Apple illegal tax benefits.

(Keystone)

On the same day that the European Commission demanded that Apple pays €13 billion (CHF14.2 billion) in backdated Irish taxes, the Geneva cantonal government announced plans to cut its corporate tax rate from 24% to 13.49% whilst ending special treatment for foreign firms.

Geneva’s decision comes in the wake of European Union pressure to end “harmful” tax practices that effectively gave subsidies to multinational companies with offices in the canton. Such changes are being implemented across Switzerland, driven by a federal reform of corporate tax rules.

In March, canton Vaud - which also plays host to many foreign multinationals – voted to reduce its corporate tax levy from 21.65% to 13.79%. In 2011 Neuchatel also reduced its tax bill from 22.18% to 15.9%.

The Geneva government’s planned cut should enter into force from 2019 and be subject to a five-year transition period. The government estimates that changes to the corporate tax rate will result in an estimated CHF440 million in lost income over a five-year period.

The next step involves a consultation period between concerned parties until October 14. The proposal will then be discussed in the Geneva parliament in November and could be subject to a local vote.

For several years Swiss cantons have competed with European countries, such as Ireland, Luxembourg and the Netherlands, to attract the regional headquarters or research centres of multinational corporate giants.

Geneva, Vaud and some other cantons boosted their appeal by taxing such foreign entities at a lower rate than domestic firms. This has helped persuade the likes of Cargill, Procter & Gamble and Caterpillar to set up offices inside Switzerland.

Row escalates

After some resistance, the Swiss government in 2014 eventually agreed to EU demands to end this practice. The Swiss parliament is currently debating a series of corporate tax reforms that plans to include tax breaks on research and development projects.

For their part, cantons have agreed to scrap tax breaks for foreign firms. To make up for this, cantons have started lowering their standard corporate tax rates, across the board for all companies, in an effort to retain their multinationals.

The story of harmful tax practices has for the moment shifted from Switzerland to other European countries. The EU and the Organisation for Economic Cooperation and Development (OECD) have been campaigning against other loopholes in recent years.

This pressure has centered largely on Ireland, Luxembourg, the Netherlands and Belgium. They are accused of arranging sweetheart deals with foreign firms that allow them to funnel profits to offshore jurisdictions in order to escape the full tax duties.

Companies such as Apple, Starbucks and Fiat have unfairly benefited from such arrangements, the EU has argued.

On Tuesday, the EC ordered Apple to pay €13 billion for allegedly breaking EU tax rules and paying an effective tax rate of just 1% in Ireland for several years. This is much higher than the earlier €30 million tax bills slapped on Starbucks and Fiat.

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