Tax topics in 2022: eco-taxes, tax transparency and global minimum tax

The global tax landscape is in upheaval - with consequences for Switzerland and its resident companies. Switzerland is an attractive location for both companies and private individuals. KPMG's Swiss Tax Report focuses on the following tax issues in 2022: With a view to the introduction of a global minimum tax for large companies, Switzerland must hurry if it does not want to accept any disadvantages. In addition, the topics of environmental taxes and tax transparency are gaining in importance and may become a challenge for some companies.

Profit tax rates in Switzerland down slightly

Ordinary corporate income tax rates in Switzerland fell slightly year-on-year - from 14.9% to 14.7%. This is due in particular to the tax cuts in the cantons of Valais (-1.6 percentage points), Aargau (-1.1 percentage points, subject to referendum on May 15, 2022) and Jura (-1.0 percentage point). The cantons of Central Switzerland and Glarus and Appenzell-Innerrhoden continue to have the lowest ordinary profit tax rates. Canton Zug, for example, leads the ranking of cantons with a rate of 11.9%, followed by the cantons of Nidwalden (12.0%) and Lucerne (12.2%). The canton of Bern brings up the rear with a profit tax rate of 21.0%.

In an international comparison, Switzerland taxes companies at a low rate. Only the classic offshore domiciles, Guernsey, Qatar and some (southern) eastern European states offer lower tax rates than the low-tax cantons. Ireland remains Switzerland's most important competitor in Europe.

Almost half of the cantons provide relief for top earners

Swiss tax rates for top incomes also fell slightly year-on-year - from 33.7 to 33.5%. The reason for this is that twelve cantons have slightly reduced the tax rate for top incomes. The biggest reductions were made by the cantons of Schwyz (-1.5 percentage points), Schaffhausen (-1.0 percentage points), Thurgau and Lucerne (around -0.6 percentage points each). Top incomes are taxed lowest in the cantons of Zug (22.2%), Appenzell Innerrhoden (23.8%) and Obwalden (24.3%). The highest tax rates are applied in the cantons of Geneva (44.8%), Basel-Landschaft (42.2%) and Vaud (41.5%).

Key tax issues in 2022: Environmental taxes

Countries around the world are turning to so-called "green" taxes to increase tax revenues and enforce the polluter-pays principle in the environmental sector. The spectrum ranges from energy taxes and emission-related measures to transport taxes and taxes on pollution, resource management and waste disposal. The share of environmental tax revenues in relation to GDP is still low. According to OECD statistics, it is around 1.5% in OECD member states, around 2.3% in the EU and around 1.4% in Switzerland. "With the expected entry into force of significant environmental policy measures in the area of taxation of CO2 emissions and plastics, the share of environmental taxes in total tax income will increase significantly in the future," predicts Anne Marie Anselmi, tax expert at KPMG.

Although recent statistics indicate a slight decline in environmental tax revenues as a share of GDP from 2019 to 2020, this decline mainly reflects delays in environmental policy implementation and tax compliance during this period. "While countries have been primarily preoccupied with dealing with the Corona pandemic over the past two years, governments need to quickly gear their budgets to the next looming crisis: climate change. Environmental taxes are one way to raise tax revenues while providing targeted incentives for a more sustainable economy," Anselmi said. Because environmental taxes are implemented very differently in different countries, the scope for action on environmental policy is often unclear, especially for companies operating internationally.

Only 19% of companies in Switzerland publish tax transparency reports

At the same time, companies are also increasingly challenged on the topic of tax transparency, as this is emerging as an important metric for assessing the governance concept of companies and is closely linked to other ESG metrics. Many large Swiss companies now publish sustainability reports, but tax aspects are rarely covered in detail in these reports.

A KPMG analysis of the 150 largest companies listed on the SIX Stock Exchange shows that just 19% of the companies publish tax transparency reports. This will change in the future. For example, numerous companies are expected to be subject to the EU's Public CbCR Directive from 2025. This will require new disclosure obligations for multinational companies with a branch in an EU country and annual sales of EUR 750 million or more.

Global minimum taxation: Switzerland must hurry up

The fact that Switzerland cannot escape international tax developments is also shown by a look at the forthcoming introduction of a global minimum tax: 18 cantons have tax rates below the minimum profit tax rate of 15% targeted by the OECD. If these cantons or Switzerland do not raise their profit tax rates for affected companies to this threshold, the difference could be taxed abroad. "According to federal estimates, the Swiss treasury would lose tax revenues of around CHF 1 to 2.5 billion, at least in the short term, which it should not do without in view of the pandemic consequences and the challenges ahead," warns Olivier Eichenberger, a tax expert at KPMG.

In view of the ambitious roadmap of the OECD and the G20 countries - the first elements of the minimum tax are to come into force as early as January 1, 2023 - Switzerland and its policy system are particularly challenged. Thus, the Federal Council has decided to implement the minimum tax with a constitutional amendment and to ensure by means of a temporary ordinance that the minimum tax can be introduced on January 1, 2024. The Swiss electorate is due to vote on this on June 23, 2023. Regardless of the outcome of the vote, the global minimum tax will have far-reaching significance for international location competition. It limits the possibilities of low-tax countries to position themselves by means of competitive tax regimes. "Countries like Switzerland are strongly challenged to specifically cultivate their other location factors, such as access to skilled labor or flexible labor market conditions," says Stefan Kuhn, head of tax and legal advisory at KPMG.

Source: KPMG