OECD Urges Switzerland To Reform Dividend Taxation

by Ulrika Lomas, Tax-News.com, Brussels

12 November 2007

While Switzerland's corporate taxes are low in comparison to most of its international competitors, the OECD has recommended that the government reinforce entrepreneurial activity by easing the country's relatively high burden of dividend taxation.

In its latest economic review of the Swiss economy, the OECD concluded that heavy taxation of dividends generates incentives for tax evasion through the creation of complicated corporate structures, and might distort financing decisions of firms that cannot raise equity on international capital markets. In addition, the tax-induced incentives to retain earnings are further increased by the absence of a capital gains tax, the OECD observed.

While the government intends to lower dividend taxation, it plans to limit tax relief to owners of stakes exceeding 10% to limit revenue losses, which according to the OECD could create incentives for some companies not to raise equity capital from new shareholders, so that existing shareholders keep their shares above the 10% threshold.

"Reductions in the taxation of dividends should not be subject to ownership limits. The added cost of extending reduced dividend taxation to portfolio investments could be funded by introducing a moderate capital gains tax," the report suggested.

Moreover, the existence of stamp duties on the issuance of equity stock also raises the cost of firm creation and growth without bringing in significant revenue and should be abolished, the OECD argued.

Further information on the OECD's Economic Survey of Switzerland can be found in the Tax News Resources section.

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