The Canton of Bern is falling behind in the cantonal competition for taxes

• At 21.04 percent, the Canton of Bern has the highest maximum effective corporate tax rate for companies in Switzerland.
• Since a few cantons have reduced their corporate tax rates, the gap between the Canton of Bern and the other cantons has widened slightly year over year.
• The upcoming introduction of a global minimum tax as well as the planned, fundamentally welcome 0.2 percent tax cut offers nearly no advantages for the Canton of Bern in terms of location competition. The first few companies are already starting to relocate out of the canton.
• At 41.05 percent, the maximum income tax rate for individuals is still one of the highest in Switzerland. Only three cantons have higher marginal tax rates.
• The Trade and Industry Association of the Canton of Bern (HIV) promotes measures to prevent tax-related location disadvantages.

Nationwide, the Canton of Bern is lagging behind in terms of its tax rates for both legal entities and individuals and lost further ground in 2023. That is one of the insights offered by this year’s edition of the Bern Tax Monitor published by KPMG and the Trade and Industry Association of the Canton of Bern (HIV).

The ordinary corporate tax rates for businesses in Switzerland declined from around 14.7 to 14.6 percent year over year, particularly since some cantons like Basel-Landschaft (-2.07 percentage points) and Aargau (-1.16 percentage points) have reduced their rates noticeably. That has slightly widened the gap between Bern, which is in last place and left its maximum corporate tax rate unchanged at 21.04 percent, and the other cantons.

The 0.2 percent tax cut from 2024 onward is also unlikely to have any appreciable impact on this. According to Frank Roth, Head of Tax at KPMG Bern, “What’s particularly significant from Bern’s point of view is that not only do the cantons of Central Switzerland have much lower corporate tax rates of around 12%, but the canton’s direct neighbors – like Fribourg and Solothurn – have significantly lower corporate tax rates as well.” The first few companies are already starting to relocate out of the canton.

Businesses in the Canton of Bern (as well) can benefit from TRAF relief measures like the special deduction for research and development, the step-up and the patent box to cut their corporate tax rate to 12.24 percent in a best-case scenario. In the 2021 tax year, 200 companies applied for a TRAF reduction (2020 tax year: 222). Detailed analyses of the individual measures should be available in early 2024 (source: Federal Tax Authority at the end of September 2023).

From the HIV’s perspective, the deductions granted as part of TRAF are not enough on their own to position the canton attractively for companies. Even after the slight tax cuts in 2021 and the upcoming reduction in 2024, there is still an urgent need to take action in the canton. Both within a national and international context, the location disadvantage is intensifying, particularly for larger companies. 

The planned introduction of the OECD’s minimum tax rate of 15% is expected to help generate slightly higher tax revenue for the Canton of Bern as well as provide more funds from the national financial equalization system (source: BSS study). However, while the OECD’s minimum tax will enable other cantons to generate substantially higher revenue as a result and those additional funds will help them position themselves more advantageously in intercantonal location competition, it will not alleviate location competition.

Despite pessimistic rumblings, the HIV remains confident that the Canton of Bern can position itself attractively. “The government council is currently working on revising both the tax and the economic strategy, which gives them an opportunity to put things on the right track,” says Daniel Arn, President of HIV.

A nationwide comparison reveals that the tax burden on individuals is high in the Canton of Bern: The maximum income tax rate of 41.05 percent is 7.6 percentage points above the Swiss average of 33.45 percent. Only the cantons of Vaud (41.5 percent), Basel-Landschaft (42.17 percent) and Geneva (44.74 percent) tax private individuals at a higher rate.

The Canton of Bern’s plan to cut taxes for individuals by 0.05 percent is being postponed to 2025. “If the Swiss National Bank SNB distributes profits of at least CHF 160 million, the tax cut is supposed to happen in as early as 2024,” says Frank Roth. “While this tax cut won’t make the Canton of Bern significantly more attractive than the other cantons from a tax perspective, it’s still a step in the right direction.”

Married couples are to be taxed the same as unmarried couples in the future. Individual taxation is to be introduced at all three levels of government (federal, cantonal and municipal). Most married couples will benefit from individual taxation. Nevertheless, according to Adrian Haas, “the elimination of the flat rate deduction for professional expenses, the limitation of commuter tax deductions, the increase in imputed rental values and only partial compensation of official property value adjustments, which also impacts property taxes in the municipalities, exacerbated the tax situation of private individuals in the Canton of Bern even further.”

Presentation Press Conference Bern Tax Monitor 2023 (PDF, in German)