Switzerland’s status as a business hub is built on a decades-long track record of success, which is largely based on low statutory tax rates and fiscal incentives. Such incentives result in a reduced tax base or provide for a lower-than-usual tax rate on selected types of income. From a business location policy perspective, such incentives represent an investment by the government in companies: It forgoes tax revenue or grants companies other financial advantages in the hope that new companies will establish themselves, create jobs, and invest—thereby fostering long-term growth in the overall economy and, consequently, tax revenue. With the OECD minimum tax, this approach—relying on low tax rates and fiscal incentives—is reaching its limits. For large, multinational corporations, the effect is partially or fully offset by a supplementary tax if an effective tax rate of less than 15% results.
Fiscal incentives have a long history in Switzerland. They were introduced by the cantons at the beginning of the 20th century and continuously expanded. After World War II, Switzerland harmonized these incentives to create greater legal equality and transparency. At the beginning of the 21st century, however, they came under criticism from abroad, prompting Switzerland to abolish them under the STAF and introduce new incentives. The current focus is on the patent box, the special R&D deduction, and tax breaks for new businesses relocating to Switzerland. With the OECD minimum tax, even these relatively new incentives are, in some cases, no longer compatible with overarching legal provisions and must be adjusted once again.
However, this new situation should not lead to the hasty conclusion that fiscal incentives are fundamentally ineffective. The OECD framework creates new conditions. Methodologically, the incentives must be redesigned, for example as refundable tax credits and direct payments. Some cantons have already taken this approach. Separate incentives for SMEs are also conceivable, as they are not subject to the OECD minimum tax. In principle, only activities based on substance and value creation should be supported, which may go beyond the current support for research and development. For example, Switzerland could promote manufacturing, digitalization, AI, or the activation of the domestic skilled workforce.
