As the economy gradually bounces back from the public health crisis, a majority in parliament wants to reduce the tax burden on large companies based in Switzerland. Next month citizens will vote on whether to end a stamp tax on the issuance of securities. Opponents of this legal amendment decry the measure as a “gift” to the richest companies.This content was published on January 6, 2022 - 09:00
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What is the vote about?
On February 13, the Swiss will vote on the future of the stamp duty on equity capital, which is levied when a company wants to raise funds by issuing securities (shares, stocks, etc.). This issuance tax currently amounts to 1% of the value of the capital raised and is imposed only on amounts above CHF1 million ($1.08 million).
The tax mainly affects large companies active in the financial sector. According to government estimates, around 2,300 businesses paid stamp duty in 2020, and 2.2% of them generated over 51% of the tax revenue.
The duty generates around CHF250 million a year for the state coffers. In Europe, only Liechtenstein, Greece and Spain levy a similar tax.
Why abolish this tax?
The plan to reform stamp duty dates back to 2009, when members of the centre-right Liberal-Radical Party in the Swiss parliament submitted a parliamentary initiative seeking a step-by-step abolition of the three taxes on legal transactions by companies: on issuance, trading and insurance premiums. The goal was to boost the international competitiveness of the Swiss financial services industry. In 2019, these taxes brought in CHF2.2 billion to the state.
The proposal was slow to come to fruition, however, as it was split into three separate bills. Parliament suspended its deliberations on several occasions to allow time to draw up the different parts of the revision, consult with those concerned, and coordinate with other ongoing reforms.
Finally, the House of Representatives decided by a very narrow majority in December 2020 to press ahead with the matter of stamp duty in order to encourage investment in Swiss companies and to help them overcome the crisis caused by the Covid-19 pandemic. The Senate followed suit last June.
Why are people being asked to vote?
The left-wing parties (Social Democrats, Greens, and Swiss Communist Party) together with the trade unions launched a referendum against ending stamp duty, arguing that the reform would only benefit the richest companies in a sector already exempt from most taxes.
“The financial sector gains hugely from the Swiss economy and does not pay VAT [value-added tax] on its products or transactions,” explains Adrian Wüthrich, president of the umbrella organisation Travail Suisse. “Moreover, capital gains are not taxed. So it’s only fair that this sector should at least pay an issuance tax.”
Only about 50 multinationals, insurance companies and banks would really be affected by the abolition of stamp duty, according to the referendum committee, while SMEs and their workforces would not benefit.
The opponents of the measure fear that the drop in tax revenue would have a lasting negative impact on already weakened public finances, resulting in cuts in services for the population, benefits for households and investments in climate protection. They also condemn the strategy adopted by parliament and the government of splitting the abolition of stamp duty into several parts in order to “conceal” the total loss of tax income, which could amount to more than CHF2 billion a year with the future reforms.
Who supports the abolition of this tax?
The business community as well as the right-wing and centre parties, which form the majority in parliament, back the abolition of the stamp duty on capital funds. The Radical Party, the Swiss People’s Party, the Liberal-Green Party and the Centre all point out that this tax is almost unique in the world, and that it represents a competitive disadvantage for Switzerland as a business location.
In the short term, parties on the political right recognise that abolishing the stamp duty will result in a loss of tax income. However, they stress that the enhanced attractiveness of the Swiss financial sector will bring higher revenue in the long term.
“Scrapping the issuance stamp tax will create new incentives for investment in and by Swiss companies,” says Radical parliamentarian Beat Walti. “When companies increase their capital, the funds are spent on innovation and create jobs and prosperity.”
What is the position of the Swiss government?
The cabinet is in favour of abolishing stamp duty, as it believes this will have a positive impact not only on businesses that relocate to Switzerland but also on those with major investment projects. Young, high-growth companies will also benefit, as they will be able to raise new capital more easily and develop faster.
The government considers ending this tax to be a welcome step in the current context, as it would “contribute, in particular, to mitigating the economic consequences of the Covid-19 pandemic by facilitating the re-capitalisation of struggling companies”.