Finance minister makes new bid to reform company tax

Finance Minister Ueli Maurer has presented his plan B for a new corporate tax after the last attempt at a change to the law was thrown out by voters.

Finance minister makes new bid to reform company tax
Many international firms, like Nestlé, are headquartered in Switzerland. Photo: Fabrice Coffrini/AFP

The plan includes raising family allowances in a move seen as sweetening the pill for voters, who overwhelmingly rejected the previous corporate tax reform in a nationwide vote on February 13th, according to media reports.

That result was a heavy blow to the government, which was under pressure to come up with a plan B to tackle concerns over Swiss corporate tax system.

READ ALSO: Swiss government's tax reform plan crushed by voters

Maurer and representatives of the cantons outlined the new tax regulations in parliament on Thursday. The reform is aimed at making Switzerland more competitive and is planned to be in place by 2019.

The minister, who hopes to avoid another public vote, spoke of the need to find “a Swiss compromise”, although he warned the plan would not be popular with everyone.

The new proposals foresee a higher tax on dividends, which should bring in 400 million francs in extra revenue a year, addressing voters concerns that tax reform would leave a large hole in federal and cantonal finances that the public would ultimately have to make up.

Maurer also proposed raising children’s allowances, which are financed by companies, to a minimum of 230 francs a month.

Ten, mainly western, Swiss cantons are already paying children’s allowances at this level, but the remainder will have to raise their allowance levels.

The move should appeal to voters angered by a perception that the middle class is struggling while companies make massive profits.

February's rejected reform plan had aimed to bring tax rates for domestic and multinational firms in line, as well as create new deductions for innovation, research and development.

The Organisation for Economic Cooperation and Development (OECD) argues Switzerland's current system is anti-competitive since foreign companies are treated more favourably than domestic ones.

READ ALSO: EU 'disappointed' in Swiss rejection of corporate tax reform 

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Clock ticking on Swiss watches’ raw materials from Russia

Diamonds shine brightly at this year's Geneva watch fair but the sanctions slapped on Russia could soon force the Swiss watch industry to produce more subdued designs.

Clock ticking on Swiss watches' raw materials from Russia

Russia is a major supplier of diamonds, gold and other precious metals to the luxury watchmakers exhibiting at Watches and Wonders, one of the world’s top salons for the prestige industry.

The Russian group Alrosa — the world’s largest diamond mining company — was hit by US sanctions within hours of the Kremlin-ordered invasion of Ukraine on February 24.

According to US Treasury figures, it accounts for 90 percent of Russia’s diamond mining capacity, and 28 percent globally.

And while trade between Switzerland and Russia is modest, gold is the chief import, ahead of precious metals such as platinum followed by diamonds not mounted or set, according to the Swiss customs office.

Compared to other sectors of the Swiss economy, “watchmaking was a branch that was less affected than others by supply problems in 2021”, Jean-Daniel Pasche, president of the Federation of the Swiss Watch Industry, told AFP.

But that may no longer be the case, he acknowledged, adding that it was hard to assess the repercussions for the watch industry at this stage.

“There are obviously reserves. Afterwards, we will have to see, depending on how long the conflict lasts,” Pasche said.

The booth of Swiss luxury watchmaker and jeweller Piaget at Watches and Wonder

The booth of Swiss luxury watchmaker and jeweller Piaget, owned by Richemont group, photographed on the opening day of the Geneva salon. (Photo by Fabrice COFFRINI / AFP)

Recycled gold and palladium
The Swiss luxury giant Richemont owns the Cartier and Van Cleef & Arpels jewellery firms, plus eight prestigious watch brands, including Piaget and IWC.

The group took the lead on Wednesday, saying all its brands have stopped sourcing diamonds from Russia.

The move will create a lot of work on the supply chain to find responsibly sourced, quality diamonds from elsewhere, Richemont chief executive Jerome Lambert told a press conference.

Gold supply is of less concern. For a decade or so, Richemont has been sourcing recycled gold for watchmaking, bought from industry and the electronics sector.

For palladium, used for instance for wedding and engagement rings, the group decided “ahead of the sanctions” to switch to suppliers specialising in recycled palladium, Lambert said.

Draining the stocks
At Patek Philippe, one of the most prestigious Swiss brands, the firm’s president is counting on his stockpile to ride out the storm.

“Luckily I produce in small quantities,” said Thierry Stern, who represents the fourth generation of his family at the company helm.

Watches made with titanium and ceramics are displayed at the booth of luxury Swiss watch manufacturer IWC,

Watches made with titanium and ceramics are displayed at the booth of luxury Swiss watch manufacturer IWC, on the opening day of the Watches and Wonders Geneva show. (Photo by Fabrice COFFRINI / AFP)

“So I don’t feel any difference yet,” he told AFP. For 2022, Patek Philippe plans to manufacture 66,000 timepieces.

“And if I can’t find certain stones, I can always do engraving,” said the head of the  brand, which relies on a wide range of disciplines including ceramics, marquetry and enamel.

H. Moser, a niche brand producing 2,000 watches a year for wealthy collectors, struck much the same tone.

“Purchases are made in advance. For example, for the casings that I want to make in 2023, I have already bought all the gold I need,” said boss Edouard Meylan.

“But maybe in six months’ time some of our suppliers will call to push back the deadlines because they haven’t received the materials,” he admitted.

Concerns over raw materials “will drive up prices, of course”, said Jon Cox, an industry analyst with the Kepler Cheuvreux financial services company.

However, compared to other sectors, luxury firms have more leeway to pass on costs to customers, he added.

At the Watches and Wonders salon in Geneva, where 38 brands are exhibiting until Tuesday, the displays are brimming with diamonds, reflecting the “generally upbeat mood” of the industry this year after a prosperous 2021.

However, given the war and its repercussions, “I imagine product development will move to more subdued luxury goods”, Cox said.