The Swiss government hopes to scrap stamp duty on certain types of financial transactions, in a move it says is necessary to maintain the attractiveness of Switzerland as one of the world's major financial centres. Earlier this week the Swiss cabinet adopted an emergency decree to exempt certain institutional investors from stamp duty on share deals to stop more trading business moving to foreign exchanges, in particular London. The finance ministry said it was targeting investors such as private and public sector investment funds, life insurers, pension funds and domestic banks trading Swiss shares on markets abroad.
The taxation of transactions is a lucrative money-spinner for the Swiss administration, and scrapping duty will result in a loss of some SFr500m (US$290.7m) to the federal coffers. However, the proposals now up for debate come are the Swiss government's doing. They closely follow the recommendations of a working group set up in March this year by the finance minister, Kaspar Villiger.
There are clear worries that foreign markets are syphoning off too much business from Switzerland, with volumes of prominent Swiss blue-chip shares traded abroad continuing to rise. The Swiss Exchange (SWX) has said around 25 per cent of total volume in these top-tier shares is traded on the London Stock Exchange. Stamp duty amounts to 75 Swiss centimes per 1,000 Swiss francs worth of traded volume. The SWX has said local brokers have been paying the tax for clients to keep their business, but the situation had to be overhauled.
The relief has also become necessary in view of the planned cooperation between the SWX and London-based electronic trading platform Tradepoint Financial Networks and the resulting need to harmonise British and Swiss taxation. The two equities markets are setting up the virt-x trading platform which is to include the SWX's blue chips.
The Swiss Bankers Association (SBA) has rejoiced at the news of a potential cut in duty, saying that the revision of the federal stamp duty legislation was SFr500m "well invested". This figure is about a quarter of the annual revenue generated by federal stamp duty. SBA president Georg Krayer said there were advantages to reducing the tax burden on domestic and foreign pension funds, insurance providers, investment fund companies and the public sector. He commented: 'In this way, we can make institutional business – a rapidly growing global market – a second key pillar of the Swiss asset management industry alongside private banking.' He refuted claims that doing away with stamp duty was a gift to the banks or the rich, saying: 'If Swiss shares are to be sold in Switzerland, then Swiss market players must be able to operate from their registered offices in Switzerland on an even playing field with their foreign competitors.'
The government has said that full abolition of the stamp duty on financial transactions if out of the question unless alternatives are found to compensate for the lost revenue. The emergency decree is to be debated in parliament later in December before it takes effect.
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