Switzerland’s reform of its corporate tax code, plans to curb immigration from the European Union and a new initiative amending shareholder rights might lead to an exodus of multinational companies registered in Switzerland. At least four companies have left or announced their intention to relocate their registered company seat outside of Switzerland in recent months.
Citing legal certainty as one of the main reasons, fire and security protection firm Tyco is the latest to plan moving its legal headquarters from Switzerland to Ireland.
“Businesses have the best opportunity to thrive in stable, predictable environments,” Tyco chief executive George Oliver said in a press release. “Ireland’s business-friendly atmosphere and its well established legal and regulatory framework and corporate governance standards provide Tyco with the most favorable conditions for maximizing returns for shareholders over the long term.”
Tyco maintains operational headquarters in New Jersey, but set up its global headquarters in canton Schaffhausen in 2009. The proposed switch would increase the number of employees in Ireland from 100 to up to 700 in the next three years, the company said.
The announcement follows a series of initiatives which put into question the ability of multinationals to set executive salary levels and employ foreign nationals in the alpine country.
Swiss voters approved the so-called Minder initiative that gives shareholders greater say over executive pay in stock market listed companies.
An order passed by the Swiss Federal Council in November 2013 allows shareholders to vote on executive and board member compensation, as well as incentives for completing mergers. It also forbids severance payments to retiring top executives from next year.
Oil services giant Weatherford, which moved its legal domicile to Switzerland five years ago, decided in April to relocate to Ireland. According to the company, new shareholder rules could lead to confusing and conflicting proposals to its shareholders and contradict the disclosures on pay in the U.S., where the company is also stock market listed.
In a circular to shareholders, Weatherford said that a successful business cannot operate in an uncertain regulatory environment. “As such, we have closely monitored proposed and recently implemented changes to Swiss law that would limit Weatherford’s ability as a multinational company to retain and attract key executive talent and directors,” it said.
The Minder Initiative will “make it extremely difficult to recruit the best that the industry has to offer.” Having an Irish headquarter will mean a “business-friendly base” and allow the company to operate at the “lowest possible cost.”
In February, a proposal was passed that will cap the number of EU foreigners permitted to live and work in Switzerland. The exact limits have not yet been decided but have already raised sufficient concern among the multinational businesses in Geneva.
Another plan to introduce a minimum wage in Switzerland is to be decided in the next two weeks. Although the matter is of little import for multinational companies, it is cited as another example of the increasing legislative uncertainty in the country.
In addition, the OECD and the EU have put Switzerland under pressure to ensure that the multinational companies they attract are more than just brass plates, that they have actual substance in the country and employ people there.
While Switzerland is not an EU member, guaranteed access to the EU market requires adherence to certain EU rules, including non-discrimination between foreign and domestic firms in their tax treatment.
As a result, the reform of the Swiss corporate tax code will see a harmonization of corporate tax rates. These rates, however, may not be able to compete with the likes of Ireland.
In February, Yahoo announced a shift of its main European tax base to Ireland from Switzerland.
Yahoo claimed the move was not motivated by tax, but the mounting pressure on Switzerland to limit some of its corporate tax incentives is likely to have played a major role.
Adrian Hug, the head of Swiss federal tax administration, told NZZ am Sonntag that in the face of international tax initiatives such as the OECD’s Base Erosion and Profit Shifting program, Switzerland could no longer rely on its tax system alone.
“We must aim for companies that are coming to us with substance,” he said. “They have to employ people in this country, pursue real business activities and create real value.”
However, new tax rules are also an opportunity for the country, Mr. Hug said.
“If there are clear global rules that implement a fair competition, we can keep pace due to our low tax rates.”