There are currently no signs that UBS is actively seeking alternatives to Switzerland. However, as a new study on profit taxes shows, there is a lot going on in the international competition between locations. Two countries are particularly interesting.
A few years ago, the OECD introduced a lower threshold of 15 percent for ordinary corporate tax rates internationally through its «Base Erosion and Profit Shifting» (BEPS) program.
Every year, KPMG analyzes the latest developments in corporate tax law at the cantonal, national, and international levels.
In their latest study, the company's tax experts, led by Stefan Kuhn, head of tax and legal advisory at KPMG Switzerland, observe: «Countries are compensating for the restricted room for maneuver in corporate tax rates due to global minimum taxation through measures such as tax credits and subsidies.»
Which Jurisdiction Would be Most Attractive?
In this context, the question arises as to which jurisdiction would be most attractive for UBS if it were to relocate its headquarters away from Switzerland. The KPMG study understandably does not address this question or individual companies—UBS Group receives tax advice from Ernst & Young.
Regarding ordinary corporate tax rates, UBS currently pays around 18.5 percent on its profits in Switzerland, according to its annual report. This figure is derived from a mixed calculation of cantonal rates, with KPMG indicating 19.61 percent for Zurich and 13.04 percent for Basel-Stadt. Basel-Stadt thus ranks among the lowest in Switzerland, while Zurich is in the upper middle.
Benchmark: 23 percent
In 2023, the major bank paid only 3 percent in corporate taxes, amounting to 873 million Swiss francs ($956 million). This was because the success behind negative goodwill resulting from the acquisition of Credit Suisse (CS) was not tax-deductible. In previous years, the corporate tax burden had been around 2 billion Swiss francs each year.
UBS estimates its long-term structural corporate tax burden at the group level (including international activities) to be 23 percent. In other words, a headquarters relocation that reduces this figure would be advantageous from a tax perspective.
Expensive Europe
So, how does the global landscape look in this regard?
Many European countries have higher corporate tax rates than what UBS currently anticipates in the long term. Rates range from 25 percent in France or the United Kingdom to 30 percent in Germany, as indicated by the KPMG analysis.
Deutsche Bank expects a mixed statutory tax rate between 28 and 30 percent. Last year, BNP Paribas effectively taxed at 31 percent in France. In other words, major banks in key European countries pay about a third more in income taxes than in Switzerland.
Certain offshore paradise sites still offer zero rates, such as the Cayman Islands and the Bahamas. However, a globally active major bank cannot set up camp here due to reputational considerations.
USA Not Participating
The USA stands out internationally. The nominal average tax rate across all states is slightly higher, at 27 percent, than UBS's current structural tax burden. However, there are significant differences at the state level. And unlike many other countries, the USA has not yet committed to the OECD's BEPS program.
This means that certain practices for reducing taxes in cross-border business remain permissible here, which cannot be applied elsewhere.
If Republicans expand their parliamentary majority to the Senate in the fall, they intend to retaliate against countries imposing penalty taxes on American companies under BEPS.
Goldman Sachs Pays 21.1 percent
Goldman Sachs' effective corporate tax rate averaged 21.1 percent from 2019 to 2023. This is slightly higher than what UBS currently pays in Switzerland but slightly lower than the figure UBS structurally anticipates globally.
The exact implications of a move to the USA for UBS's business taxation would require detailed analysis. However, a significant deterioration compared to the current position is unlikely based on the numbers and comparisons.
Singapore Fuels Subsidies Race
In their presentation of the study results yesterday, KPMG's tax experts also mentioned Singapore. There, the corporate tax rate of 17 percent is already very competitive by today's standards.
Additionally, the city-state stands out in the increasingly dominant discipline of tax subsidies. Specifically, it has designed a «Refundable Investment Credit Scheme» to enhance attractiveness for investors.
According to the program's announcement, companies can claim up to 50 percent of certain expenses as tax credits. Depending on the specific investment project, these include «investments in physical capital,» «personnel costs,» «training costs,» or «costs for the construction and expansion of corporate headquarters.»
In response to a query from finews.asia, KPMG tax expert Kuhn emphasizes that, in his opinion, any considerations regarding headquarters relocation are not primarily driven by tax reasons. Branding considerations and the general regulatory environment weigh more heavily. He is not aware of any efforts by jurisdictions to poach Swiss banks currently.
Interplay of Push and Pull Factors
The extent to which the attractiveness of countries like Singapore or the USA increases also depends on how extensive the Swiss Federal Council's announced increase in regulatory capital requirements for UBS turns out to be.
From an investor's perspective, these requirements, during the buildup of additional equity, have a similar effect to corporate taxes: They reduce the amount a profitable bank can distribute to its shareholders. This, in turn, tends to drive the company abroad.
