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Tuesday, February 2, 2010
12:44 PM EST
Tim Andrews

Sound Tax Competition Policy From Switzerland

 

 We have previously written about how the United States ought look to Switzerland for guidance on its corporate tax policy. However, with the release of President Obama's FY2011 budget yesterday, and its total and utter failure to address the endemic problems with the U.S. tax code,  a Wall Street Journal story today is particularly timely on how tax competition provides benefits to all:

The cantons of Lucerne and Obwalden have also cut tax rates. In 2006, Obwalden, south of Zug, undercut Zug to introduce the lowest corporate rate in Switzerland, 12.7%. Obwalden built an industrial park last year, increased its marketing budget and improved the highway to the Zurich airport. It has attracted 450 small companies for each of the past three years, netting 2,000 new jobs.
 
Switzerland's cantons are offering low tax rates to tempt multinationals to establish regional headquarters or other operations in their jurisdictions. In doing so, other states are trying to take business away from Zug, the canton that has mastered the game of attracting business to such a degree that it is beginning to run out of space.
Since the 1960s, Zug has set the pace in persuading multinationals to set up shop, drawing names such as Johnson & Johnson, Burger King Holdings Inc. and Siemens AG. As Zug now runs short on housing and office space, cantons nearby are getting in on the act. "Zug made an extremely good decision years ago to have a competitive tax code," says Georges Meyer, a tax partner at PricewaterhouseCoopers in Zurich. "Now you see a trend of neighboring cantons trying to attract business too."
The result of tax competition?
The cantons of Lucerne and Obwalden have also cut tax rates. In 2006, Obwalden, south of Zug, undercut Zug to introduce the lowest corporate rate in Switzerland, 12.7%. Obwalden built an industrial park last year, increased its marketing budget and improved the highway to the Zurich airport. It has attracted 450 small companies for each of the past three years, netting 2,000 new jobs.

Switzerland's federal corporate tax rate is 8.5%. In the United States, companies pay a staggering 35% - the highest federal corporate tax rate in the world. Even when cantonal and municipal taxes are included, the average corporate tax rate in Switzerland is 21.2%, effectively half the US average of 39.5%. Is it really any wonder that Kraft., Yahoo and Google have established European headquarters in Switzerland, and more than 150 U.S. companies now have a presence there?

Unless the U.S. government addresses our ludicrously high corporate income tax rate urgently, more and more companies will flee overseas, more jobs will be lost, and everyone will suffer. It's time for change. 

 

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