Tax competition: Canton of Bern under pressure

With a maximum corporate tax rate of 20.54 percent, the Canton of Bern still trailed the rankings in an intercantonal comparison conducted in 2024. While the canton’s cut of 0.5 percentage points helped it slightly narrow the gap between it and the second-to-last-placed Canton of Zurich, it still exceeds the Swiss average of 14.6 percent by nearly six percentage points.

“Compared to its neighboring cantons of Fribourg and Solothurn, the Canton of Bern is still losing out from a tax perspective – even despite this year’s 0.2 percent tax cut for legal entities,” says Frank Roth, Head of Tax at KPMG Bern. 

The Canton of Bern is more competitive when it comes to taxing research-intensive companies that benefit from TRAF relief measures like the special deduction for research and development (R+D) and the patent box. Thanks to the generous way these instruments are structured in the Canton of Bern, research-intensive companies can reduce their corporate tax rate to 12.24 percent in a best-case scenario. While the Canton of Bern is still one of the lowest-ranked cantons in this comparison of minimum tax rates, the difference between the cantons with the lowest tax rates and the Swiss average of 10.96 percent is much smaller than for ordinary tax rates.

From the HIV’s perspective, the deductions granted as part of TRAF and the slight rate cuts of 2021 and 2024 are not enough on their own to position the canton attractively for companies. According to Adrian Haas, Director of the Trade and Industry Association of the Canton of Bern (HIV), “There is still an urgent need to take action in the canton.”

“The fiscal location disadvantage is intensifying in both a national and international context, particularly for larger companies. That is problematic in that large companies contribute disproportionately to the tax base and the relocation of such companies can potentially leave large gaps,” added Haas. For example, data published by the Tax Administration of the Canton of Bern show that 7.5 percent of the legal entities bear 88 percent of the canton’s tax burden. Because of the three-tier tariff, around two-thirds of the legal entities pay merely 0.22 percent of the canton’s tax revenue.

Even the introduction of the 15 percent global minimum tax rate will not ease the location competition situation for the Canton of Bern. Why? Because the OECD’s minimum tax will enable other cantons to generate substantially higher revenue and those additional funds will help them to better position themselves in intercantonal location competition.

Despite pessimistic rumblings, the HIV remains slightly optimistic that the Canton of Bern can position itself more attractively in the future: “The government council is working on making small, steady incremental tax cuts and revising its economic strategy, which presents an opportunity to improve other location-related conditions,” says Daniel Arn, President of HIV.

A nationwide comparison shows that individuals are taxed at a high rate in the Canton of Bern. The maximum income tax rate of 41.04 percent is 8.3 percentage points above the Swiss average of 32.73 percent. Only the cantons of Vaud (41.5 percent) and Geneva (43.33 percent) tax private individuals at a higher rate. Since Basel-Landschaft has cut its maximum income tax rate from 42.17 to 40.73 percent, Bern has slipped down one notch to third-to-last place.

While the Canton of Bern is planning a tax cut of 0.5 percent for individuals in 2025, this will not improve the canton’s attractiveness to any material degree in an intercantonal comparison. Adrian Haas went on to explain that “the tax situation of private individuals in the Canton of Bern has actually worsened over the past few years. Contributing factors have included in particular 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.”