Advice on the cantonal implementation of the third series of corporate tax reforms III
The Cantonal Government wants to implement the third series of corporate tax reforms in the Canton of Basel-Stadt in a package of measures, from which location, economy, and population will equally benefit.
Abandonment of the cantonal tax status
So-called status companies (holdings, mixed and domiciliary companies) are currently taxed at a considerably reduced rate for cantonal profit and capital taxes. The profit tax burden of these often internationally-oriented companies amounts to about 8 to 11% in all Swiss cantons. However, Switzerland - like many other countries – must abandon tax models which are no longer internationally accepted. The reform associated with this is urgent: Countries and companies that uphold such models are threatened with serious countermeasures.
Affected companies are indispensable for the location
The companies affected by the reform have a very high importance for cantonal finances and the economy of the Canton of Basel-Stadt: They contribute up to 61% of the revenue from profit and capital taxes, make up 48% of the added value and offer 32,000 full-time jobs in the canton. If the Canton of Basel-Stadt does not take measures, revenues and jobs would be endangered in the medium term.
Cantonal package of measures solves the enormous challenge
1. Attractiveness and location security for companies
The package of measures contains new and internationally-accepted tax measures: With the patent box, proceeds from research and development will be disencumbered and a discount on equity capital will be introduced with the interest-adjusted profit tax. The cantonal tax rate on profit will be lowered to 13% effectively (incl. direct federal tax) and the tax rate on capital will be reduced to 1 per thousand. The new, ordinary income tax rate of 13% in combination with the new tax measures will have the following effects on companies:
- Companies that do not benefit from the tax status, currently bear a profit tax burden of up to 22%. Small and medium-sized enterprises (KMU) in particular will profit substantially from the reduction to 13%.
- The tax rate on profits of internationally-oriented companies will typically increase from currently about 8 to 11% to the new burden of 13%.
- Using the patent box, companies can reduce their profit tax burden up to 11%. In accordance with international standards, this reduction is solely guaranteed for companies that effect significant research expenditures in Switzerland.
- In order to partially compensate the high reduction of the ordinary tax rates, the partial taxation of dividends will be raised from 50% to 80%. In spite of this increase, the total tax burden of companies and shareholders will remain lower than prior to the reform.
2. A financial relief for the population and contribution from companies
Not only companies shall benefit from the reform package. The Cantonal Government has therefore decided to use important financial resources for the benefit of the population. Moreover, the Cantonal Government also expects a contribution from companies.
- The exempt allowance will be raised by 1,000 Francs for individuals and 2,000 Francs for married couples. The income tax for natural persons will thus be lowered by 30 million Francs.
- The child and training allowance will be increased by 100 Francs per month. Thus, a part of the companies’ savings will be passed onto employees.
- Thirdly, the cantonal contributions to the premium reductions for health insurance will be increased by 10 million Francs.
3. Sustainability for cantonal finances
The reform package can only be financed because the Canton of Basel-Stadt has a structural surplus. The second condition for the financeability of the reform package is the adoption of the federal reform: As a result of the planned corporate tax reform, the canton will receive an additional scope of about 70 million Francs per year from the Confederation.
The reform package secures the location, disencumbers the population, and is affordable for the canton
The reform package will re-establish the essential location security for companies. In combination with all measures, the package will also have the following effects:
- The companies will be disencumbered by around 100 million Francs per year.
- The people will be disencumbered by a total of 110 million Francs per year.
- The revenue shortfalls of the canton will amount to 140 million Francs per year after the coming into effect of all measures and after consideration of the compensation of the Confederation. Due to the structural surplus and the compensation of the Confederation, the revenue shortfalls are affordable for the Canton of Basel-Stadt.
Consultation procedure runs until 15 December 2016
The Cantonal Government has opened the consultation procedure for the cantonal implementation of the third series of corporate tax reforms on 8 September 2016. The consultation procedure will continue until 15 December 2016 and the documents are available under the following link.