Schwyz vote heats up cantonal tax competition

A new round of tax cuts may be spreading, starting in Canton Schwyz Keystone

Voters in Canton Schwyz are to decide on proposed tax cuts on Sunday as the competition to attract wealthy residents and businesses gains momentum.

This content was published on February 10, 2006 - 18:32

Schwyz has one of the lowest corporate and personal rates in Switzerland, but plans to slash the levy on wealth and share dividends.

Residents of Schwyz will vote at the weekend on proposals to lower tax on the net assets of individuals and on share dividend income, which is subject to double taxation in Switzerland at company and shareholder level.

The competition among cantons to entice rich people and international companies with the lure of low taxes heated up on January 1 when Obwalden introduced the lowest corporate rates in the country.

A recent survey showed that 18 of the 26 cantons intend to lower their taxes this year.

Schwyz authorities declined to comment on their vote, but tax lawyer Stephan Hürlimann, who advises the canton, told swissinfo that it has nothing to do with Obwalden.

"This is not a reaction to Obwalden lowering their taxes. It is just part of a general tendency among cantons to reduce tax," he said.

Freeloading

But the debate over tax competition in Switzerland refuses to go away with canton Zurich accusing others of freeloading on their amenities.

A meeting of the cantonal finance chiefs last month announced they were opposed to "excessive" tax competition and agreed to set up a working group to review taxation guidelines.

Part of the debate centres around Obwalden's decision to also introduce a degressive (or regressive) income tax system that reduces rates as income rises.

Obwalden reduced taxes for all residents, but especially for those earning over SFr300,000 ($233,000) a year.

The centre-left Social Democrat Party initially raised an objection, but the baton has been taken up by communist parliamentarian Josef Zisyadis, who moved from Lausanne to Obwalden to oppose the tax changes.

Constitution

Zisyadis, along with three other Obwalden residents, has lodged an appeal with the federal court, arguing that degressive tax is in violation of article 127 of the Swiss constitution that bases the payment of tax on an individual's capacity to contribute.

"In a way, it's the return to the Middle Ages in the social organisation of society. The richer you are, the less you contribute to the community," Zisyadis told swissinfo.

If the federal court decides there is a case to answer it will set a legal precedent, according to tax experts.

Canton Obwalden authorities declined to comment on the issue.

swissinfo, Matthew Allen

In brief

Switzerland sets some of the lowest corporate tax rates in the world, attracting multinational companies to set up holdings in cantons such as Zug, Schwyz, Nidwalden and Obwalden.

Last year the European Commission questioned whether tax breaks to entice foreign firms to Switzerland contravened the 1972 Free Trade Agreement. The EC will decide by the end of next month whether to impose penalties on Switzerland.

The Swiss government is coming under increasing pressure from the centre-left Social Democrat Party to scrap tax breaks for around 3,000 wealthy foreigners living in Switzerland. The Party has threatened to take the case to Brussels.

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Key facts

Last December canton Obwalden voted by 86% to introduce a degressive tax system that came into force on January 1.
Corporate tax rates were also slashed to just 6.6%, becoming the lowest in Switzerland. Property tax dropped by at least 30%.
Voters in Schwyz will decide on Sunday, February 12, whether to cut wealth and share dividend tax

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