The Swiss tax system: General comments
Philippe FRESARD, notary and lawyer in Berne and Manuel PIQUEREZ, notary and lawyer in Porrentruy
The fairness of tax systems could be debated for days. What seems normal in one place is considered to be fundamentally unfair elsewhere. The Swiss themselves sometimes wonder why certain companies do not relocate to Switzerland… At the same time, many people believe that Switzerland does not play fairly in terms of fiscal competition. What is the reality of the situation? Part of the answer probably lies in the fact that there is not one but several Swiss tax systems…
The Swiss tax system: a federal system
The Swiss tax system is strongly characterised by the country’s federal structure. Fiscal sovereignty belongs to the Confederation, the cantons and the communes, but in the end it belongs to the citizen who, very often, are required to decide on fiscal issues in referendums at each level.
The Confederation can only levy taxes in the cases formally set out by the Federal Constitution. It is worth mentioning, in particular, direct federal income tax on natural persons and on the profits of legal persons, but also VAT, which has a current rate of 8%.
As sovereign federal states, the cantons are free to levy taxes as they please, insofar as the federal Constitution does not formally forbid it and that no exclusive rights to such taxation are set aside for the Confederation.
Cantonal tax law is varied in its conception and is a welcome source of competition. This competition leads to a constant improvement in the allocation of the State’s revenues. Most cantons, as far as direct taxes are concerned, levy income and wealth tax on natural persons as well as tax on the capital and profits of legal persons.
Communes can also levy taxes within the limits set out by the legislation of their canton. Communal taxes mainly cover additional ordinary cantonal taxes, using the same tax bases.
In any case, just because there are several types of taxes, it does not mean that the tax is crippling. As there is not one but several Swiss tax systems, the diversity of cantonal fiscal systems often leads to quite tough competition. This can open up good opportunities for tax payers, if they are well advised.