Shipping companies in Switzerland do not have the same tax treatment as their main competitors. The introduction of a tonnage tax would create over 2,000 jobs.
Jan Langlo – Director of the Association of Swiss Private Banks (ABPS)
Even if it is not intuitive, Switzerland has the 4th maritime fleet in Europe (far behind Greece and just after Denmark and Germany) and the 9th in the world. The maritime trade in Switzerland comprises 55 companies operating a total of more than 900 ships, which provide 22% of the transport of raw materials in the world. There are also 2,000 jobs, which could more than double if a tonnage tax is adopted, according to a study by the CREA Institute in Lausanne.
What is a tonnage tax? It is, in fact, a method of determining the taxable profit resulting from the operation of a seagoing vessel. All of Switzerland’s main competitors introduced this principle into their legislation many years ago. The Federal Parliament had discussed the matter during the draft of the RIE III, before removing it to simplify the latter. After a largely favorable consultation in 2021, the Federal Council sent a bill to Parliament on 4 May 2022.
Since the author of this blog has participated in the position paper of the Ordre Romand des Experts Fiscaux, the purpose of this contribution is to examine the extent to which the comments expressed therein were taken into account.
In Section 73 P-LIFD, activities that may be subject to tonnage tax have been supplemented while remaining exhaustive. But in subparagraph c of paragraph 3, profits from ancillary activities remain limited to those exercised “on board the ship”, which excludes the transport of passengers or goods from their point of origin to the ship. Furthermore, the 50% limit on profits resulting from the operation of the vessel, instead of the turnover as in the European Union, implies unnecessary accounting.
The condition imposed by article 74 P-LIFD reduced the interest of the project to nothing, by requiring 60% of the tonnage of the taxpayer’s fleet to fly a Swiss or European flag, which also went far beyond European requirements. The new Section 74 P-LIFD requires, on the contrary, that a vessel wishing to benefit from tonnage tax must be registered in a country which, like Switzerland, has ratified the four main international conventions on maritime traffic.
“To fight on a level playing field in this sector where there is strong competition, Switzerland would do well to introduce a tonnage tax into its law.”
Jan Langlo, Director of the Swiss Private Banking Association
The calculation of net profit in Article 75 P-LIFD has not been changed, but a reduction in paragraph 3 has been added for companies that only manage vessels, without owning them, as is the case in the Netherlands and Cyprus. A reduction of up to 30% is also foreseen (20% in the preliminary design) if the vessel meets certain ecological requirements, which are no longer limited to the propulsion system. This extension is welcome, but one might question whether this reduction is justified, given that the sector has already committed to reducing its CO 2 emissions by 40% by 2030 compared to 2008. .
The rules on the beginning and end of liability under article 76 P-LIFD were kept unchanged, but were complemented by a paragraph 2 that provides for the ordinary taxation of the difference between the book value and the market value of a ship at the beginning of its tonnage tax liability; this tax may, however, be deferred until the ship is sold.
Is it really reasonable now to introduce a method of taxation that leads to an effective rate of less than 15%? In fact, yes, because the OECD itself provided for the exclusion of revenues generated by international maritime transport activities in its tax reform projects, and the Federal Council did the same in its draft constitutional decree.
To fight on a level playing field in this sector where there is strong competition, Switzerland would do well to introduce a tonnage tax into its law.
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