An intercantonal comparison of tax rates reveals that Bern is one of the nation’s lowest-ranked cantons. The location’s fiscal disadvantage will likely translate to over CHF 150 million in lost tax revenue from individuals and risk eroding the middle class even further. The canton’s poor positioning is also making it difficult to attract new businesses. Given that this unfortunate situation deteriorated even further just recently, action is urgently needed to prevent the canton from losing any further ground. The adoption of the Federal Act on Tax Reform and AHV Financing (TRAF) now presents the Canton of Bern with even greater challenges.
KPMG and the Trade and Industry Association of the Canton of Bern (HIV) assess the tax situation of individuals and legal entities in the Canton of Bern on a regular basis in their annual publication, the Bern Tax Monitor. From a tax perspective, the canton has been at a considerable locational disadvantage for years and recent developments have caused the situation to deteriorate even further. Vaud and Basel-Stadt, on the one hand, have both cut their corporate tax rates substantially, leaving only Valais and Geneva with corporate tax rates higher than those levied in the Canton of Bern. On the other hand, several different cantons have made more progress in their implementation of TRAF measures than the capital city’s home canton. At the same time, the rejection of the 2019 tax law revision in November of last year caused the Canton of Bern to lose even more ground in terms of its ability to compete with other cantons. Any hopes that the canton won’t miss the bus completely now hinge on its implementation of the TRAF bill.
The Government Council of Bern passed the 2021 tax law revision to do precisely that. This revision is scheduled to enter into force on 1 January 2021, with certain parts of the revision taking effect retroactively to the beginning of 2020. The HIV welcomes the bill as a practicable compromise. “There’s probably no way of avoiding it in the medium term – the taxation of legal entities will have to be adapted to current developments,” explains HIV Chairman Kurt Rohrbach. While the Canton of Bern might be well positioned in terms of international tax competition, most of this competition is taking place at the intercantonal level.
KPMG’s analysis also shows that the Canton of Bern has lost any competitive edge it might have had with respect to its corporate tax rate for legal entities, which stands at 21.6 percent in the Canton of Bern compared to the Swiss average of around 17 percent. The cantonal comparison of corporate tax rates shows that the Canton of Bern only ranks above Valais (21.7 percent) and the Canton of Geneva (24.2 percent), whereby cuts are being planned in both of those cantons (VS: 17 percent, GE: 14 percent).
Although the current bill does not touch on cuts to corporate tax rates, the need to make changes to how legal entities are taxed is evident. “By 2021 at the latest, Bern will be the lowest-ranked canton by far in terms of corporate tax rates,” says Adrian Haas, Director of the HIV. That makes taking smart steps now to defuse the situation all the more important.
The 2021 tax law revision, for example, provides for a 90 percent reduction in patent income within the framework of the patent box. Additionally, companies in the Canton of Bern should be able to deduct another 50 percent for investments made in R&D – bringing the total potential deduction to 150 percent – with these investments also subject to a 70 percent tax relief restriction.
A reduction in the tax coefficient from 3.06 to 2.82 percent from 2021 onward (as part of the regular budgeting process) will bring minimal reductions to corporate taxes, which are high compared to those in other cantons. The HIV estimates that this move will lighten the corporate tax burden by CHF 40 million per year. At the same time, TRAF measures will serve to promote the canton’s innovative strength. This is also confirmed by an analysis performed by KPMG: Innovative companies can significantly reduce their corporate tax burden by fully exploiting the relief measures in place. A company that maximizes its patent box relief of 70 percent has an effective corporate tax rate of 12.4 percent. By comparison: The corporate tax rate in the Canton of Bern is 21.4 percent without relief measures.
Action is also needed in the area of individual taxation: The top tax rate in the Canton of Bern is currently 41.3 percent, with higher rates only assessed by Geneva, Basel-Land, Vaud and Ticino. Bern’s 2021 tax law revision does not provide for any changes with regard to individuals, however, apart from an increase in deductions for third-party care.
A glance at the canton’s current commuter figures, however, shows that the Canton of Bern must act to prevent more high-income taxpayers from moving to surrounding cantons. Commuter statistics reveal that the Canton of Bern loses more than 20,000 individuals (net) to other cantons. According to HIV estimates, this figure corresponds to tax revenue of more than CHF 150 million.
Media Conference - Slides (PDF, in German)
The Bern Tax Monitor is a systematic, intercantonal comparison of the tax competitiveness of the Canton of Bern. It analyzes the canton’s attractiveness in terms of corporate taxation and its revenue structure. The Bern Tax Monitor is the result of a joint effort between KPMG and the Trade and Industry Association (HIV) and has been published every autumn since 2012.