Switzerland's unique tax system, where each canton sets its own tax rates, has led to a form of "national sport" in tax competition. This decentralization allows cantons to attract wealthy residents and businesses, though national law prevents cantons from completely abolishing the wealth tax. Despite significant variations in income and net wealth taxes across cantons, data shows little impact of these differences on wealth distribution.
Cantons like Zug, known for its low tax regime, actively compete with other international hubs like Singapore or the Netherlands for business, rather than with neighboring Swiss cantons. For instance, Zug's finance director, Heinz Tännler, noted that a neighboring canton's attempt to compete on taxes failed due to lost revenue. Zug's top marginal wealth tax rate is 0.3%, generating about one-fifth of its personal taxation revenue. In contrast, Geneva has a 1% top marginal rate on net wealth.
Switzerland's ability to maintain a wealth tax without suffering negative effects like discouraging wealth accumulation or scaring away the rich, suggests that common concerns about wealth taxes may be exaggerated. However, one academic study indicated that a 1 percentage point increase in the wealth tax rate could reduce reported wealth by 23%, though even with such a response, tax revenues could still increase by pushing rates up to 3%. The use of tax rulings, such as Zug protecting startup owners from wealth taxation until IPOs, is noted as a "slippery strategy" that could lead to unhealthy tax competition.
The Swiss tax system has drawn criticism from the EU, which views some cantonal tax-cutting policies as unfair subsidies. For example, Canton Obwalden slashed its corporate tax rate to 6.6%, attracting 376 new companies in 11 months. High-earning celebrities like Johnny Hallyday, Charles Aznavour, Michael Schumacher, and Tina Turner have moved to Switzerland for tax benefits. Zurich, with an overall tax rate of 21%, has attracted major companies like Google, Kraft, and IBM, despite EU concerns. Stefan Kux, head of economic development for Zurich, views the EU's complaints as positive, stating they act as "free economic promotion" for Switzerland's tax system.
