Swiss Finance: Capital Markets, Banking, and the Swiss Value Chain

CHAPTER 10

Swiss Taxes on Investment and Financing1

INTRODUCTION

The Swiss Constitution gives federal authorities the right to impose and collect indirect taxes, such as value-added taxes, excise taxes, stamp duties, and customs duties. Since 1940, to permit the imposition and collection of direct taxes on income, these rights have been extended by the federal council. In the beginning, this income tax was intended only to be an extraordinary financing source for World War II (Wehrsteuer), but it has remained and, after the war, was renamed the direct federal tax (Direkte Bundessteuer). Cantons and municipalities also have the right to impose and collect direct taxes on income and capital. Furthermore, the assessment and collection of direct federal taxes are the responsibility of the cantons, with the Federal Tax Administration retaining supervisory powers.

Because of the overlap among federal, cantonal, and municipal taxes,2 the Swiss Federal Constitution empowered federal authorities to harmonize the basis of these taxes. In 1993, the Federal Tax Law was passed to achieve horizontal harmonization, and on January 1, 1995, further legislation at the federal level was implemented to achieve vertical harmonization.3

By international standards, Switzerland is not a tax haven. Swiss taxes have been relatively stable, reflecting the nation's steady political, economic, and social climate, but recently they have been growing faster than the European average, due mainly to the nation's ...