Tax competition wins business
Brevan Howard and BlueCrest have added their names to a long list of fund managers and traders opening offices in Switzerland, but less well known is the fierce competition between the Swiss cantons for this business.
Switzerland has been voted the most competitive country in the world, in business terms. So says the World Economic Forum in its latest Global Competitiveness Report 2011, which is based on the opinions of more than 13,500 companies from around the world.
At a time when various legislative bodies around the world are busy trying to increase costs and taxation on business, it is no wonder that Switzerland should become a favourite venue for the hard pressed fund management industry.
But if Switzerland is competitive internationally, it is because the Swiss federal or cantonal structure makes the Swiss highly competitive domestically. A good example of this is to be found in the ferocious competition that now rages between the cantons for the honour of having the lowest taxes.
In business terms, the Swiss seem to be torchbearers of the philosophy that low taxes mean more growth, and therefore more government revenue. The Swiss tax system is made complex by a large number of factors, most obviously by the cantons’ fiscal autonomy, which fosters inter-cantonal competition, but also by a range of different taxes each applied differently across the country’s 26 cantons. Coupled with the country’s political system of direct democracy, this competition has kept taxes low.
Tax is always a hot topic of debate in domestic politics and often the subject of the country’s many referendums. It is perhaps not surprising that an attempt to reduce this tax competition was rejected last December in a referendum. This result reaffirmed the tax authority of the cantons in Switzerland, ensuring that the healthy tax competition between them continues.
The result will be duly noted by all fund managers, whether already based in Switzerland or intending to move there. It is difficult to establish exactly how many fund managers are moving to Switzerland. One indication is that last year, two high profile London hedge funds to have opened offices in Switzerland, Brevan Howard Asset Management, Europe’s largest hedge fund manager, and BlueCrest Capital, a $19bn fund.