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03-12-09, 03:15 PM #1
Corporations Eye Lower Tax Rates - in Switzerland.
During the campaign, candidates spoke frequently about "Americans having their jobs shipped overseas..."
With America's wealth being dissolved at an alarming rate, and the remainder threatened by the tax-hungry, big-government left-wing administration, corporations are seeking means to protect assets and maintain lower overhead to remain competitive: relocation overseas.
RPT-FEATURE-Corporate oil booms in low-tax Switzerland
Thu Mar 12, 2009 9:04am EDT
* Companies seek Swiss domiciles despite tax row
* U.S. political climate may be helping
* Appeal as corporate location may outlast offshore dispute
By Sam Cage
ZUG, Switzerland, March 12 (Reuters) - The tidy towns and mountain vistas of Switzerland are an unlikely setting for an oil boom.
Yet a wave of energy companies has in the last few months announced plans to move to Switzerland -- mainly for its appeal as a low-tax corporate domicile that looks relatively likely to stay out of reach of Barack Obama's tax-seeking administration.
In a country with scant crude oil production of its own, the virtual energy boom has changed the canton or state of Zug, about 30 minutes' drive from Zurich, beyond all recognition. Its economy was based on farming until it slashed tax rates to attract commerce after World War Two.
It still has a chocolate-box old town with views over a lake to the high Alps, but is now surrounded by gleaming corporate offices -- including commodity trader Glencore and oil refiner Petroplus -- shopping malls and housing developments.
Local authorities say about 13 percent of full-time jobs in Zug canton are in the raw materials sector.
Over the past six months companies including offshore drilling contractors Noble Corp and Transocean, energy-focused engineering group Foster Wheeler and oilfield services company Weatherfield International have all announced plans to shift domicile to Switzerland.
"Switzerland has a stable and developed tax regime and a network of tax treaties with most countries where we operate," Transocean Chief Executive Bob Long said in a statement in October, when it announced its move. "As a result, the redomestication will improve our ability to maintain a competitive worldwide effective corporate tax rate."
Guido Jud, head of Zug's tax office, said about 1,200 companies had set up shop there in 2008 -- in line with the long-term average, though it is difficult to assess how many of those are foreign companies until they file tax returns.
Swiss cantons are free to set their own tax rates. For example in Zug, corporate tax is about 16 percent but can fall as low as 9.5 percent for companies that do most of their business outside Switzerland. That compares with an average global corporate tax rate of 25.9 percent, according to consultancy KPMG.
"One trend that we see is that particularly Bermuda-based companies are now moving to Switzerland," said Martin Frey, a partner at law company Baker & McKenzie. "That may only partly be obviously for tax reasons, but also for security reasons and the fact that the Obama administration may go after them."
The moves come as the Alpine country is under pressure to stop providing a haven to rich individuals who have been illegally dodging taxes: the U.S. political climate could be contributing to the corporate relocations as authorities seek to crack down on tax avoidance and boost their own revenues.
A bill introduced in the U.S. Congress in March targeting "offshore tax dodges" by individuals and companies names Switzerland among tax havens for evaders.
Offshore tax abuses cost the U.S. Treasury an estimated $30-60 billion in lost revenues from corporation tax, plus $40-70 billion from individuals, according to the office of Senator Carl Levin, who is sponsoring the bill.
Switzerland holds around $2 trillion of estimated global undeclared assets, according to the Boston Consulting Group. Revenue generated from this could be squeezed as a U.S. probe of its biggest bank UBS dilutes banking secrecy.
Yet analysts say the Swiss, whose GDP in 2008 was about 530 billion Swiss francs ($460 billion) according to the International Monetary Fund, are less likely to meet opposition to the low-tax regimes that draw foreign companies: these are deemed less harmful tax avoidance, rather than evasion.
"They are still making some money by having lower taxes on companies," said Lee Sheppard, contributing editor to Tax Notes, a tax journal based in Washington DC.
"But they're not ever going to be making the amount that other governments are annoyed about losing."
Analysts note that because Switzerland has its own tax treaty with the United States, blacklisting it at a corporate or individual level could cause unproductive diplomatic incidents.
Low-tax jurisdictions like Bermuda or the Cayman Islands look more vulnerable because they have less diplomatic clout, which is prompting some companies to head for Switzerland.
The European Commission, the European Union's executive body, has said the tax regimes in cantons like Zug, Schwyz and Obwalden are a form of state aid: it wants Switzerland to end favourable treatment of foreign-earned profits.
Switzerland, which is not a member of the EU, denies the cantons' special status violates its free trade deal with the bloc and rejects negotiations with Brussels on fiscal matters.
But it has pledged to consider some other company taxation regulations the EU has objected to, such as the status of foreign companies, aiming to ensure these go beyond thinly staffed headquarters to invest and create jobs in Switzerland.
Baker & McKenzie's Frey thinks more companies will shift to Switzerland, and Zug's Jud also highlighted the country's neutrality and reliability as an attraction to energy companies who do business in less stable countries.
"We are not reckoning on an unusually strong boom, but a continual and sustainable growth on the scale of the last few years and decades," Jud said.
Companies say Switzerland's attractiveness as a corporate location goes beyond tax to include easy and efficient transport, a high quality of life high and well-trained staff.
In the current climate, the attractions for the companies that move clearly outweigh one drawback: by making the switch they potentially sacrifice inclusion in stock market indexes such as the closely watched benchmark Standard & Poor's 500.
"In the past and most recently with Transocean, Standard & Poor's has ruled that the process of redomesticating to Switzerland renders a company 'ineligible for continued inclusion' in the S&P 500," said Macquarie Research analyst Angie Sedita in a note.
In buoyant times, inclusion in such indexes has offered access to equity capital. But the S&P 500 has fallen more than 50 percent since October. (Additional reporting by Braden Reddall in Houston; Editing by Sara Ledwith) ($1=1.158 Swiss Franc)
Wall Street's tanking, jobless rates skyrocketing, and economic indicators' bottoming out are as much an indication of this type of fear-threat response than they are due to the mortgage default rates. Applying some common sense to the facts have to leave the educated observer with but one conclusion. Obama (and the wildly galloping liberal Congress) are simply scaring the hell out of the corporations, the wealthy, and everyone whose income relies on private-sector (non-government) consumption. Higher tax burdens on the horizon are catching employers, producers, and the banks like deer in the headlights, and have many seeking the exit or buckling down for the hard ride in hopes for a horizon. If you want to turn the economy around, its quite simple to do: renew the tax cuts, stop threatening to further destroy wealth in America by forcing it to be 'shared', fined by environmentalists, or taxed away, reduce the ridiculous and unprecedented government spending trend that has been created, and allow capitalism to work as designed, without burdening it with sophomoric government influence.
"The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money."
- Alexis de Tocqueville, Democracy in America
Tell me not, Sweet, I am unkind,
That from the nunnery
Of thy chaste breast and quiet mind
To war and arms I fly. - Lovelace
The opinions expressed by this poster are wholly his own, and should never be construed to even remotely be in representation of his employer, its agencies or assigns. In fact, they probably fail to be in alignment with the opinions of any rational human being.
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