Big banks in Switzerland will get relief from a tax burden expected to kick in from 2020, the Swiss government decided. Smaller rivals will be left out in the cold.
Systemically relevant banks won't be subject to an additional tax burden for their stronger capital requirements, the Swiss government said in a statement on Wednesday.
This effectively means the government is gifting Switzerland's systemically relevant banks – UBS, der Credit Suisse, Raiffeisen, Zuercher Kantonalbank and Postfinance – hundreds of millions in tax relief: the too-big-to-fail banks would be subject to higher corporate tax rates as they raise money in the capital market to bolster their own solidity.
Without the break, banks would face an «increased profit tax burden, which in the long term could lead to additional receipts of up to several hundred million Swiss francs a year in the case of direct federal tax and cantonal tax,» the government said.
Tax Contradiction
Why? Banks must reinforce their capital by issuing instruments like contingent convertible bonds, or Cocos, by January 2020. The parent company divvies the proceeds from the instruments among its sub-companies which require capital.
All fine, but the parent company is hit with higher tax on financial interest revenue, which isn't tax-deductible. In Switzerland, where the central bank as well as financial regulator Finma pushed forcefully for bigger safety cushions following the 2008/09 financial crisis, an additional tax on the capital raises doesn't make sense, the government said.
Small Banks Shut Out
This isn't the first time that Switzerland has met its largest banks halfway: the country's largest banks wielded their influence two years ago when the government was hammering out new, stricter requirements, as finews.com reported at the time.
The tax gift is piquant because it follows a lively debate among Swiss finance firms. Smaller banks and insurers also wanted to make use of the exemption, but appear to have been blocked by the government from doing so. Given the opposition to the tax relief in the first place, «the change will be limited to systemically relevant banks in order to keep the exemption as narrow as possible,» the government said.
