- The Canton of Bern reduced its corporate tax rates slightly from 21.6 to 21.0 percent last year.
- Nevertheless, the canton comes in last in an intercantonal comparison and is in danger of falling behind: The gap between it and the second-to-last canton, Zurich, has widened by 0.9 percentage points.
- Companies that benefit from TRAF measures can reduce their tax burden substantially.
- The Canton of Bern also compares unfavorably with respect to its taxation of top incomes and risks losing some of its tax base.
- A cut in the corporate tax rate would be one possible way of improving the location’s attractiveness from a tax perspective.
The fiscal policy disadvantages of the Canton of Bern as a location intensified further over the past year – even despite a slight reduction in the ordinary corporate tax rate for companies from 21.6 to 21.0 percent. However, since the Canton of Zurich reduced its tax rates even more strongly than the Canton of Bern (from 21.2 to 19.7 percent) as part of the Federal Act on Tax Reform and AHV Financing (TRAF), this caused the capital city’s home canton to fall even further behind. That is one of the insights offered by this year’s edition of the Bern Tax Monitor published by the Trade and Industry Association of the Canton of Bern (HIV) and KPMG.
Corporate tax rates to be reduced further
The cantons tax companies at an average rate of 14.9 percent, with Central Switzerland levying a comparatively low rate of 12 percent. At 21 percent, the tax burden on companies in the Canton of Bern is considerably higher. Relief measures put into place as part of the TRAF reform were able to compensate for the existing tax disadvantage, at least to some degree, since companies in the Canton of Bern are able to benefit from a minimum tax rate of 12.2 percent as a result of the new instruments and transitional rules. However, this only applies to companies that are able to fully exploit the relief measures available such as the step-up, the special deduction for research and development and the patent box. .
The question of how the OECD’s minimum tax rate of 15 percent will impact companies currently being taxed at a lower rate due to these relief measures also remains unanswered. Because of this, Daniel Arn, President of HIV, sees an urgent need to take action: “We clearly favor a further reduction in the corporate tax rate, which would prevent the Canton of Bern from falling behind in tax competition.” “Even if the direct impact of new global tax regimes on the Canton of Bern is limited, these are expected to result in a loss of tax revenue in Switzerland, which would reduce the funds available to the financial equalization system, thereby impacting the Canton of Bern indirectly. That makes it important for the Canton of Bern itself to become more attractive,” adds Frank Roth, Head of Tax at KPMG Bern.
Location disadvantage also with respect to individual taxes
Most cantons only made minimal cuts to their top income tax rates for individuals in 2021, which brought the nationwide average down from 33.8 to 33.7 percent. The Canton of Bern was among them and trimmed its tax rate slightly from 41.3 to 41.0 percent. In a cantonal comparison, only Vaud (41.5 percent), Basel-Landschaft (42.2 percent) and Geneva (44.8 percent) levy higher income tax rates.
The elimination of the flat rate deduction for professional expenses, the limit on commuter tax deductions and the increase in imputed rental values have exacerbated the situation regarding individual taxation even further. According to HIV Director Adrian Haas, “Many well-off individuals and executives are settling somewhere outside the canton, which means a smaller tax base.” Based on data provided by the Tax Administration of the Canton of Bern, just under 8 percent of the taxpayers with the highest incomes in the Canton of Bern bear around 35 percent of the tax burden. He adds that “it’s now up to the government council to boost the location’s attractiveness, particularly for top earners, and identify ways for Bern’s businesses to lure top talent to the canton”.
The HIV also welcomes the ongoing discussions regarding the elimination of the imputed rental values as well as the popular initiative on individual taxation.
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 of the Canton of Bern (HIV) and has been published every autumn since 2012.
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