Recently, the issue of taxation has not really been the centre of attention – despite the fact that Switzerland adopted a Tax and Pension Fund Reform, called STAF in 2019 and that Basel-Stadt additionally clarified the local tax situation with its cantonal bill. Time for us to venture into an analysis about the possible effects of both proposals with Martin Dätwyler, Director of the Basel Chamber of Commerce.
The rapid implementation of STAF, in particular the provisions relating to the so- called Patentbox resulting in a higher degree of legal certainty was eagerly awaited in Basel-Stadt. What direct impact can now be expected for Basel as a business location?
Fortunately, Basel-Stadt acted quickly and brought the cantonal implementation of the STAF to a vote even before the national vote was carried out and thus positioned itself early on the national and international tax competition with an attractive tax rate. This resulted in a leap to first place on the national tax ranking. Baselland also managed to improve its position significantly, moving up to 5th place. We anticipate this will have a positive effect on Basel as a business location, but equally importantly, it was a crucial step towards preventing a massive tax increase for companies already established in Basel.
The STAF also introduces a number of changes on a Federal level. What do you think are the most important ones for our region and for Switzerland as a business location in general?
The most important thing, I believe, is that companies can now anticipate exactly what the tax load will be for them in coming years. That gives them good planning security. Companies working on an international scale are therefore pleased, that the adoption of the STAF has brought about a solution that is broadly based politically. The importance of research and development in this reform is also particularly relevant for our region. With the so called Patentbox – leading to partial aleviation of tax on profit returns made from qualified patents – we now have an innovative and internationally accepted instrument, allowing us continue and strengthen our position as an important research location in the future. With the STAF, we have also abolished privileged taxation in Switzerland and have thus been able to counteract the pressure that has been exerted by the OECD.
The City of Basel regularly reports high annual profits – year after year. It is also a City ruled by the political Left and has a high level of expenditure. What is the City’s secret to success??
It is first and foremost an economic success story. We look back on a number of extremely prosperous years and are fortunate that the pharmaceutical industry generates such high tax revenues with its profits. Even now, in the current crisis, we are seeing how important life sciences are for a stable economy and reasonably stable tax revenues. The canton has of course directly benefited from this, regardless of political majorities or interests. And it has provided Basel with sufficient financial leeway for the tax bill 17, or increased investment spending and has also made it possible to discuss aid packages in the Corona crisis.
However, one does not have to be a prophet to recognise that this cannot go on forever. The fact that spending has increased massively in recent years is a cause for concern. In good times, high revenues such as this can easily pay for all of it. But now, due to the Corona pandemic and the associated recession, tax revenues are facing a decline. The OECD’s tax plans threaten to produce further revenue shortfalls. The higher the expenditures, the greater the distribution struggles will be if the belt has to be tightened financially.
The reduction of the statutory profit tax rate from 20% to a proportional 6.5% will result in a new effective tax burden of 13.4%. Contrary to widespread preconceptions, our canton is actually developing from an unattractive tax city into an increasingly attractive business location. Was this tax reduction long overdue and what is the next big challenge?
The fact that the canton had a high tax burden is not a preconception, but simply a fact. Let me remind you that the local government and the business community here agreed on the need for a reduction in profit tax already years ago. Nevertheless, the Canton of Basel-Stadt has long been an attractive business location because it was able to compensate for somewhat higher taxes with other important location factors. The implementation of tax bill 17 also made the Canton more competitive in terms of corporate taxes. So in that sense, this reform was indeed overdue. Basel-City has made a great step forward here. The next challenge is now clearly to tackle the issue of income tax. There is an urgent need for action here.
Income taxes are also being reduced and Basel-Stadt is now the number two municipality with the lowest tax rates in the region. Should the neighbouring municipalities follow suit?
You have to be careful about what is actually being compared. The fact is that both, Basel-Stadt and Baselland do not compare well in terms of the income tax burden for private individuals on a national level. The “Swiss Tax Report 2020” recently showed it all too clearly. Even for incomes of 100,000 Francs p.A. or more, Basel-Stadt has a significantly higher tax burden than the Swiss average. If wealth taxes are included in this comparison, the situation becomes even more pronounced.
The slight reduction in income tax is therefore a move in the right direction, but can only be an intermediate step if Basel wants to become fiscally attractive for international professionals working and living here in Basel.
September 22, 2020
