World Bank tax report gives Swiss high marks

The Swiss tax system for companies remains competitive and further enhancements are being made to make it more business friendly, says a report released Tuesday by the World Bank.

The 2010 “Doing Business Paying Taxes- The Global Picture” report, conducted in conjunction with accounting firm PricewaterhouseCoopers, gives Switzerland high marks for its tax regime compared to other countries.

In a case study, conducted in cooperation with economiesuisse, the business association, it concludes that Switzerland, with an average total tax rate for corporations of 30.2 percent, is second only to Canada (25.3 percent) among comparable countries.

“Due to Switzerland’s distinctively federal structure, each of the 26 cantons has its own tax jurisdiction, which leads to a tax competitive environment,” the report says.

“A comparatively low corporate tax burden and taxpayer friendly institutions are the result.”

Switzerland ranks 37th out of 183 countries studied for total tax rate for companies as a percentage of commercial profits.

It falls behind generally small and undeveloped countries such as Timor-Leste (ranked number one with rate of 0.2 percent) or oil-rich ones such as Qatar, Saudi Arabia and Bahrain – all in the top 10.

However, a comparison chart with industrialized countries shows Switzerland with lower average total taxes than the Netherlands (31 percent), South Africa (31.8 percent), India (35.1 percent), Australia (35.4 percent), the UK (38.2 percent), the US (42.8 percent) and Belgium (52.1 percent).

The total tax rate includes labour taxes (particularly heavy in Belgium) and other levies in addition to corporate income tax.

The study found that Switzerland ranked fifth for lowest taxes in Europe, behind Luxembourg, Ireland, Cyprus and Denmark.

The study on Switzerland, conducted by Armin Marti and Luca Christen, of PricewaterhouseCoopers, said Swiss companies can benefit from low taxes on profits.

However, they point out that the decentralized governmental structure results in a relatively high number of different taxes “and, consequently, a high number of tax payments compared to other countries.”

The authors could not be reached by Swisster for comment.

But in a statement on PricewaterhouseCoopers website, Marti, a tax and legal services partner said:  "Switzerland's biggest challenge in maintaining an attractive tax environment is an increasingly intense competitiveness internationally."

A case study Swiss company examined for the report was subject to 15 taxes, but a survey shows as many as 49 different taxes could be applicable to corporations. On average companies are subject to 28 of them.

The report points out that businesses could benefit from “efficiency improvements” to streamline the Swiss tax system.

But it notes that the federal government has already announced proposed reforms in a bid to maintain and further enhance the country’s competitiveness by reducing some taxes and abolishing stamp duty.

Simplification of the value-added tax (VAT) system is also expected next year.

At the same time, the report highlights a Swiss plan to eliminate preferential tax status for “letter-box” companies whose operations are outside the country, along with a proposal to introduce a minimu tax for other “preferred company types.”

The World Bank report also calculated that companies spent 63 hours a year on average complying with tax requirements, compared with an international average of 286 hours. It ranked second only to Luxembourg in this department.

The report underlines the fact that corporate tax is just one of many taxes paid by companies internationally.

"In a recession, company profits, and therefore corporate income tax payments, may fall, but the cost of taxes for business may still increase where other taxes paid are not linked to profitability," a summary of the report said.

"With the current economic downturn, one of the challenges for governments is how to safeguard the public revenues needed for provision of public services and social safety nets, while at the same time, encouraging investment, growth and job creation."