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Understanding RFFA challenges for companies in Switzerland
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Understanding RFFA challenges for companies in Switzerland

In 2017, two votes were held: the first one, on the reform of corporate taxation (RIE III) and the second one, on the retirement pension (Prévoyance Vieillesse 2020). Both consultations were rejected by the people, therefore the government has developed the new RFFA proposal to meet the two challenges still present in Switzerland: to propose a taxation of companies in accordance with international standards while still being competitive and fund the AVS.

 

What is RFFA ?

RFFA stands for Reform of Taxation and Financing of the AVS. On the one hand, the Swiss tax system is no longer in line with the demands of the international community, and on the other hand, the AVS must pay pensions to an ever-increasing number of people whereas its financial difficulties increase. That is why the Parliament has passed this federal law, which aims to harmonize the tax rate for small and large companies and help guarantee AVS pensions.

The main idea of this reform is to remove the tax benefits gifted to certain companies when the bulk of their activities take place abroad, in order to tax them at the ordinary rate. Today, in the canton of Geneva, these organizations are taxed at 11.6% while the ordinary rate is 24.2%. In order not to scare businesses away, this federal proposal introduces new tax deductions that the cantons will be free to adapt to their situation.

In this way, several cantons have planned to lower their ordinary tax rate. As of January 1st 2019, Canton of Vaud has also anticipated by reducing its own to 13.79%, while Geneva is preparing to lower it to 13.99%. If case of a “yes”, the Cantons will have until January 1st 2020 to comply and adapt their legislation.

Source: KPMG - Presentation from Vincent Thalmann - Current company taxation

 

The Parliament linked to this reform social compensation measures in favor of the AVS in which an additional CHF 2 billion will be paid each year as of 2020 to cope with population aging. Around CHF 800 million will be financed by the Confederation. On the one hand, by assigning to the AVS the "demographic percentage" of the VAT that it is entitled to and, on the other hand, by raising by CHF 300 million the amount of its contribution to the expenses of the AVS.

The remaining CHF 1.2 billion will be financed equally by the contribution of companies and people with a 0.3% increase in contributions (0.15 point, or CHF 1.50 for every 1,000 CHF)

Source : information list from the Swiss Confederation published on 18.02.2019 

 

RFFA: new tax measures to remain a competitive country

In order to partially compensate the removal of its tax benefits and to continue to make Switzerland a competitive country in order to set up businesses, a number of measures are planned:

The social part of Geneva

The Geneva implementation project adds two important social measures:

- Increase in the amount of health insurance subsidies

The maximum amount of the health insurance subsidy will increase from 90 CHF to 300 CHF per month and will concern 125,000 persons (against 53,000 today).

- The creation of new childcare places

In order to promote the integration of women into the labor market and to meet the needs of families, Geneva proposes to create a foundation for the development of pre-school care and wishes to finance 533 additional childcare places by taking 0.07% out of the uncapped payroll.

 

Necessary reforms

While promoting research and development, the RFFA project partly addresses the urgent need for AVS funding and fairer taxation that is consistent with international compliance. On the one hand, without removing tax privileges, Switzerland could expect consequences abroad that would be harmful to its economy. On the other hand, removing the tax benefits without the Cantons adjusting their tax rates would increase the risk of companies relocation, potentially resulting in a loss of jobs and tax revenues.

The proposed measures therefore aim at positive dynamic effects by providing legal certainty for international companies and promoting employment and investment. Geneva lies on its international dimension and an eighth of the Canton's tax revenues come from companies that conduct most of their activities abroad (source: FER).

For Geneva, this reform, both federal and cantonal, is essential in order to preserve employment and benefits for the population, relieve the middle class by developing the social aspect, while benefiting the municipalities and show consistency around Lake Geneva.

 

As you can see in this chart, at the end of April 2019, 59% of voters were pros or certainly pros RFFA whereas 35% were cons.

Stay tuned on May 19th 2019 to discover the choice of the citizens.