Switzerland lives up to its reputation as a tax haven for companies, according to a report published on Thursday.
The country was highly rated for its favourable rates and ease of paying taxes. The results come at a time of tension between Switzerland and the European Union over the Swiss corporate fiscal system.
"Paying Taxes 2008 – the global picture", a study by the World Bank and professional services firm PricewaterhouseCoopers (PwC), rated countries according to how much tax businesses were charged.
The Pacific island of Vanuatu headed the table with a fiscal rate of just 8.4 per cent.
Switzerland was 24th worldwide in terms of total tax rate – all taxes that businesses pay – and second in Europe, behind Ireland.
"With a total tax rate of 29.1 per cent, Switzerland is only 0.2 per cent behind top-ranked Ireland with 28.9 per cent," said PwC.
Switzerland was placed ahead of eastern European and Baltic countries, which have nominally lower corporation taxes but which carried the burden of higher capital tax and social insurance costs as well as customs and transport levies, said PwC.
It did considerably better in the world listings than its neighbouring countries: Germany (50.8 per cent, ranked 124), France (66.3 per cent, ranked 157) and Italy (76.2 per cent, ranked 168).
The study, which considered the tax systems in 178 countries, found that nations were reforming their company tax systems – more than half had made changes in the past few years.
The Swiss population is due to vote on a second batch of reforms to company taxes in February next year.
Easy does it
Aware that companies in different countries were subject to different types of taxes and regulations, researchers included for the first time an ease of paying taxes rubric, which shows how easy or complicated it is for companies to pay their dues.
It not only includes tax rates, but also the administrative burden and the number of different levies.
Switzerland came 15th worldwide and fourth in Europe in this category. Asian and Middle East countries scored highly in this rating with the Maldives, Singapore, Hong Kong (China) and United Arab Emirates leading the rankings. Ukraine and Belarus had the most complicated systems.
The research also showed the amount of time taken by companies to comply with their tax obligations, such as filling in their tax returns.
"Switzerland is very attractive... In the global ranking it is placed sixth [in this category] and in the European comparison, second after Luxembourg," said Armin Marti of PwC Switzerland.
However, compliance does not include the actual payment of tax.
The global average for compliance was 56 days. The study found that in Switzerland it took just 63 hours, despite the country being subject to numerous company taxes.
EU tax row
The results come at a time of an ongoing corporate tax row between the EU and Switzerland.
Brussels wants the Swiss authorities to scrap a practice applied by some cantons that exempts company profits generated in EU countries from tax. It claims doing so violates a 1972 free trade accord.
Switzerland has repeatedly refused to negotiate with the EU over the issue. The government says that corporate taxes are a cantonal issue and are not covered by the trade agreement.
However, the two sides did agree in October to dialogue aimed at resolving the situation.
Research released in July this year appears to confirm Switzerland is attracting companies for tax reasons. It found that a record number of firms had set up shop in the country in the first six months of 2007.
Canton Obwalden, which drastically slashed corporate tax rates at the beginning of 2006, recorded the fastest growth.
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PwC's Total Tax Rate (TTR) indicator measures the amount of all taxes and mandatory contributions borne by the business in the second year of operation, expressed as a percentage of commercial profits.
This is a more comprehensive measure, which looks at the cost of all such contributions borne by business rather than focusing only on corporate income or profit taxes.
EU-Swiss tax disharmony
Switzerland believes that the 1972 free trade accord with the European Union does not apply to the tax benefits granted to foreign companies by a number of cantons.
It argues that the 1972 agreement is only applicable to certain goods (agricultural and industrial products).
Bern also says that when the agreement was signed, Switzerland and the European Community did not foresee harmonising their legislation. Bern also argues that the rules of the trade agreement must not be interpreted in the same way as internal EU regulations on competition.
The European Commission says that tax privileges granted by some Swiss cantons to foreign companies are contrary to the 1972 accord.
The EU is calling on Switzerland to give up the tax practice and adapt to its demands.
The tax advantages in question concern foreign holding companies whose headquarters are in Switzerland but which make profits abroad.
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