Taxes: Canton of Bern not making any headway

• At 21 percent, the Canton of Bern has the highest maximum corporate tax rate for companies in Switzerland.
• Since certain cantons have reduced their corporate tax rates (with the Swiss average declining from 14.9 percent to 14.7 percent), the gap between the Canton of Bern and the other cantons has widened slightly year over year.
• In terms of intercantonal location competition, the upcoming introduction of a global minimum tax as well as Bern’s 2024 tax law revision offer nearly no advantages for the Canton of Bern.
• At 41 percent, the maximum income tax rate for individuals is one of the highest in Switzerland. Only three cantons have higher marginal tax rates.
• According to the Trade and Industry Association of the Canton of Bern (HIV), even if companies benefit from tax cuts related to the tax reform and AHV Financing (TRAF), steps must still be taken to prevent location disadvantages related to tax.

The Canton of Bern remains unattractive from a tax perspective. In fact, in a nationwide comparison, the Canton is at the bottom of the scale in terms of its tax rates for both legal entities and individuals. That is one of the insights offered by this year’s edition of the Bern Tax Monitor published by KPMG and the Trade and Industry Association of the Canton of Bern (HIV).

After the Corporate Tax Reform (TRAF) brought tax cuts throughout the country in previous years, only a few individual cantons reduced their corporate tax rates from 2021 to 2022. The biggest reductions were seen in the cantons of Valais (–1.6 percentage points), Aargau (–1.13 percentage points) and Jura (–1.0 percentage points). The Canton of Bern, on the other hand, left its maximum corporate tax rate at 21.04 percent, putting it far above the new Swiss average of around 14.7 percent (previous year: 14.9 percent). "It should be noted, though, that the Canton of Bern can reduce its tax rate to 12.24 percent for companies capable of exploiting the relief measures available like the step-up, the special deduction for research and development and the patent box," explains Frank Roth, Head of Tax at KPMG Bern. In the Canton of Bern, 166 companies have applied for a TRAF reduction for the 2020 tax year and 180 have requested one for the 2021 tax year. No information is available yet regarding the scope of the relief.

From HIV’s perspective, the deductions granted as part of TRAF are not enough on their own to position the canton attractively for companies. "Since only certain companies can profit from the relief measures provided for in the TRAF reform, the capital city’s home canton must take further measures into consideration, such as reducing the corporate tax burden, in order to boost the location’s attractiveness from a tax perspective," says Daniel Arn, President of HIV.

The next tax law revision is already in the works and the government and Cantonal Parliament plan to both standardize the tax treatment of solar installations in 2024 and promote their use more heavily. "But that bill will do little to alleviate the excessive tax burden on individuals and legal entities in the Canton of Bern," says Adrian Haas. "The only things that would make the location more attractive are reductions of tax rates or tax multipliers for individuals as well as legal entities."

Even the introduction of a global minimum tax for top-performing companies with international operations, one that would raise the minimum tax rate in low-tax cantons to 15 percent through a supplemental federal tax, would do little to improve Bern’s standing as a location. While it might limit tax competition for those companies somewhat, it will not succeed in fully leveling the playing field with respect to cantonal tax rates. "Thanks to the additional revenue expected (cantonal share of supplemental taxes), low-tax cantons will be able to intensify their efforts to cultivate other location factors. It will not, however, ease the situation surrounding intercantonal location competition at all," explains Frank Roth.

At 41.04 percent, the Canton of Bern is also unfavorably positioned in terms of its income tax rate for individuals, which is one of the highest in Switzerland. Only the cantons of Vaud (41.5 percent), Basel-Landschaft (42.17 percent) and Geneva (44.75 percent) tax private individuals at a higher rate. The average income tax rate in Switzerland is 33.52 percent in 2022, down 0.22 percent from the previous year. "The Canton of Bern is also becoming increasingly unattractive for individuals. This is causing an outflow of individuals relocating to surrounding cantons, which is eroding the tax base even further," says Adrian Haas. That statement is also confirmed by a glance at the current commuter statistics published by the Federal Statistical Office: The number of people commuting from surrounding cantons to the Canton of Bern (57,490 people) is still considerably higher than the number of people commuting in the other direction (39,885 people).

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