On 11 May 2023, the Geneva cantonal parliament has adopted (94 votes in favor, 0 against and 1 withheld) the counter project which entails the abolishment of the Municipal Business Tax together with an increase of the cantonal income tax rate.
Municipal Business Tax (MBT) – A Geneva uniqueness
The MBT is a municipal tax that has been levied exclusively in the Canton of Geneva for more than two centuries and applies to business activities carried out by self-employed individuals and legal entities within the canton.
It is calculated mainly based on gross revenues, as well as on office rental costs and the number of full-time employees. The tax rate on revenues varies depending on the type of business activities carried out in the canton.
Legislative update
Considering that it is not an income-based tax and due to its negative impact on the canton’s competitiveness from Swiss and international standpoints, the MBT has been increasingly challenged over the past years. In 2021, a cantonal initiative (IN 183-C) was submitted with the aim of abolishing the MBT altogether. However, the Geneva parliament did not consider this proposal as an appropriate solution mainly due the fact that the MBT generates annual revenues of approx. CHF 190 million for the municipalities.
To compensate for this loss of revenue, the counter-proposal (PL 13293) increases the effective corporate income tax rate from 14% to 14.7% (combined cantonal/municipal and federal rate).
The Initiative committee has 30 days following the publication of the adoption of the counter-proposal to withdraw their initiative. Provided this takes place, a cantonal referendum is then held if 500 signatures of Geneva citizens are collected within 40 days. However, a referendum seems unlikely as the counter proposal is the result of a broadly based political consensus.
In case the Initiative committee does not withdraw the initiative, the latter would be subject to public vote together with the counter proposal.
An ideal solution
The counter-proposal is excellent news for Geneva taxpayers as going forward, the tax burden in place of the MBT is assessed on the basis of the constitutional principle of taxpayers’ ability to pay taxes. Scrapping the MBT will also help reduce the tax compliance burden.
And last but not least, the “integration” of the MBT into the corporate income tax allows to include the tax costs within the Covered Taxes for the purposes of the OECD Global Anti-Base Erosion Model Rules (GloBE - Pillar Two). As the Geneva effective tax rate is still expected to be below the 15% global minimum tax, companies subject to GloBE rules should therefore benefit from this solution by the reduction of a potential domestic top-up tax.
The entry into force of the counter-proposal has yet to be determined but it is expected to correspond with the planned date of entry into force of the GloBE Rules in Switzerland, i.e. 1 January 2024.
We will keep you updated on these developments. Should you have any questions in the meantime, please don’t hesitate to contact us.
