The reform of the withholding tax is worthwhile


Editorial on the reform of the withholding tax

Let’s get the business back from Luxembourg

On September 25, the reform of the withholding tax will go to the ballot box. She may not be perfect, but she is very purposeful. It is plausible that the reform will pay off for the Treasury.

The reform of the withholding tax is the subject of intense debate.

Laurent Gillieron / KEYSTONE

Voting battles on tax reforms usually leave voters at a loss. The opponents argue with high tax losses because they view the reform only statically. They ignore positive effects that could result from behavioral adjustments. The supporters, on the other hand, promise additional tax revenues because they (over)emphasize the dynamic effects. The voting campaign for the reform of the withholding tax is also taking place according to this pattern. The united left speaks of tax losses of 600 to 800 million francs a year. The centre-right calculates that the reform could pay off for the Treasury after just three years.

Who are you supposed to believe? Let’s do the plausibility test.

The reform of the withholding tax is pursuing a clear goal: more bonds are to be issued in Switzerland. Luxembourg is considered a great role model. Compared to the gross domestic product, 190 times more bonds are issued there than in Switzerland. Although Switzerland has a strong financial center, fewer and fewer bonds are being issued. Between 2009 and 2021, the issuance volume fell by 57 percent. The debt capital market is considered underdeveloped. The withholding tax on bond interest acts as a stumbling block.

The withholding tax of 35 percent is intended to ensure that income is taxed. The tax honest get it back, the tax fraudsters don’t. That’s the theory. In practice, however, the withholding tax has two disadvantages for foreign investors: Firstly, reclaiming the withholding tax is time-consuming and foreigners cannot always reclaim the entire amount. Second, there is a lack of liquid funds if you have to wait for the withholding tax refund. If Swiss corporations need outside capital for new investments, for example, they often issue their bonds abroad. The Federal Council and Parliament want to bring back this business and the associated group financing activities. For this reason, the withholding tax on interest on domestic bonds and on interest income from investment funds is to be abolished.

This Mechano makes sense. Even SP national councilor Jacqueline Badran said in the parliamentary debate that the SP could live with it if the financing companies were brought back. “Because then we have them more under control than if they are in Luxembourg or on the Cayman Islands.” If you ignore the usual distrust of corporations, then you can read from this statement: The aim of the bill is a good thing. And the fact that the public sector, i.e. the federal government, cantons and municipalities, together with their hospitals or electricity plants, can finance themselves more cheaply if the debt capital market is stimulated should actually also be in the interests of the left.

Nevertheless, she called the referendum. The left fears that tax evasion will increase. This danger cannot be dismissed out of hand. Anyone who wants to evade taxes can already do so today simply by buying foreign bonds. Their interest income is already exempt from withholding tax.

Of course, the simplest thing would be to introduce a reporting requirement for domestic bonds. That in turn would amount to a (partial) abolition of banking secrecy in Germany. And the resistance would come from the right instead of the left.

On top of that, if you introduce a reporting obligation for bonds, why not also for income from dividends? But then the withholding tax would also become obsolete in this area, which would be associated with high losses for the tax authorities, at least in the short term.

Would that be acceptable to the left? The reform of the withholding tax is not perfect, but it is very targeted. It is plausible that the proposal will lead to additional income.