Geneva to end tax breaks for commodity traders

Thu Oct 18, 2012 11:27am EDT

* Cedes to EU pressure, plans higher tax rate

* New flat tax rate of 13 pct vs special rate of 11.6 pct

* Tax could deal another blow to Geneva's competitiveness

* Other low-tax Swiss cantons may benefit

* Rival hub Singapore also looks to lure trading houses

By Emma Farge

GENEVA, Oct 18 (Reuters) - Geneva plans to eliminate tax breaks for commodity trading houses by 2018, bowing to European Union (EU) pressure at the risk of helping drive away businesses which account for a big part of its financial sector.

Switzerland has come under pressure from the EU to end so-called "fiscal holidays", including those which Geneva offers to major trading firms such as Vitol, Mercuria and Gunvor.

Brussels says these amount to unauthorised state aid, a view which carries weight despite Switzerland not being in the EU because of the country's dependence on the EU as a trading partner.

But the new tax could deal another blow to Geneva's competitiveness versus other low-tax Swiss cantons, such as Glencore's headquarters Zug, and rival hub Singapore.

Over the past two years, the city state has stepped up efforts to lure commodity traders from their European homes. A Singapore government official said he expected the rise in Swiss taxes to help their efforts, although he said some executives were still reluctant to move despite the Asian commodities boom.

Geneva, the world's number one centre for oil trading with around 35 percent of global volume, is proposing to implement a new flat tax rate of 13 percent on corporate profits in 2017 or 2018 for all companies, compared with the current special rate for commodity trading houses of 11.6 percent.

By comparison, the tax rate for Geneva-based companies not qualifying for the tax break is 24.2 percent. In Singapore trading firms are charged between 5 and 10 percent.

"It's more or less certain that Switzerland will have to give up special tax rates. 13 percent is a level we consider reasonable," said Roland Godel, spokesman for Geneva's finance department.

TOP SPOT

Jacques-Olivier Thomann, president of Geneva's Trade and Shipping Association (GTSA), said the proposed new tax level was lower than feared but could still hurt the city, which also

holds the top spot in grain trading with 35 percent of volume.

"We are talking about a level which is not too painful, although people won't be happy either. Even if we say the increase will be small, Dubai and Singapore are still coming here to try to attract these companies," he said this week.

Separately, Geneva's Socialist Party is seeking a referendum to eliminate tax breaks for international firms, including commodities trading houses, which it says mostly hire non-Swiss nationals and inflate property prices.

The initiative has already acquired the necessary 10,000 signatures for a referendum which could take place in 2013 or 2014, according to an official for the Geneva canton. If passed, it would likely become law a year later, he added.

Local authorities are due to rule on the legal validity of the motion by December.

Signs of rising costs for Swiss traders come after world number three oil trader Trafigura said in May that Singapore would become its main centre for booking trades.

Other trading houses including top oil trader Vitol have also expressed concerns about higher taxes in the Swiss city.

"I am concerned about the cost of the Geneva office and it's not helped by the higher Swiss franc. The tax rates in Switzerland are increasing and threaten to increase further. Other jurisdictions are actively courting us," Vitol Managing Director David Fransen said last month.

Under both new tax scenarios presented by the proposals, Geneva would still be cheaper than Britain, where the official corporate tax rate was 28 percent in 2011, according to accountancy firm KPMG.

Geneva's main rivals in oil trading are London with 25 percent of volume, New York and Houston with 20 percent and Singapore with 15 percent, according to GTSA.

In grains, Geneva ranks ahead of Singapore with 20 percent.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.