* Companies seek Swiss domiciles despite tax row
* U.S. political climate may be helping
* Appeal as corporate location may outlast offshore dispute
By Sam Cage
ZUG, Switzerland, March 12 The tidy towns and
mountain vistas of Switzerland are an unlikely setting for an
Yet a wave of energy companies has in the last few months
announced plans to move to Switzerland -- mainly for its appeal
as a low-tax corporate domicile that looks relatively likely to
stay out of reach of Barack Obama's tax-seeking administration.
In a country with scant crude oil production of its own, the
virtual energy boom has changed the canton or state of Zug,
about 30 minutes' drive from Zurich, beyond all recognition. Its
economy was based on farming until it slashed tax rates to
attract commerce after World War Two.
It still has a chocolate-box old town with views over a lake
to the high Alps, but is now surrounded by gleaming corporate
offices -- including commodity trader Glencore and oil refiner
Petroplus -- shopping malls and housing developments.
Local authorities say about 13 percent of full-time jobs in
Zug canton are in the raw materials sector.
Over the past six months companies including offshore
drilling contractors Noble Corp and Transocean, energy-focused
engineering group Foster Wheeler and oilfield services company
Weatherfield International have all announced plans to shift
domicile to Switzerland.
"Switzerland has a stable and developed tax regime and a
network of tax treaties with most countries where we operate,"
Transocean Chief Executive Bob Long said in a statement in
October, when it announced its move. "As a result, the
redomestication will improve our ability to maintain a
competitive worldwide effective corporate tax rate."
Guido Jud, head of Zug's tax office, said about 1,200
companies had set up shop there in 2008 -- in line with the
long-term average, though it is difficult to assess how many of
those are foreign companies until they file tax returns.
Swiss cantons are free to set their own tax rates. For
example in Zug, corporate tax is about 16 percent but can fall
as low as 9.5 percent for companies that do most of their
business outside Switzerland. That compares with an average
global corporate tax rate of 25.9 percent, according to
"One trend that we see is that particularly Bermuda-based
companies are now moving to Switzerland," said Martin Frey, a
partner at law company Baker & McKenzie. "That may only partly
be obviously for tax reasons, but also for security reasons and
the fact that the Obama administration may go after them."
The moves come as the Alpine country is under pressure to
stop providing a haven to rich individuals who have been
illegally dodging taxes: the U.S. political climate could be
contributing to the corporate relocations as authorities seek to
crack down on tax avoidance and boost their own revenues.
A bill introduced in the U.S. Congress in March targeting
"offshore tax dodges" by individuals and companies names
Switzerland among tax havens for evaders.
Offshore tax abuses cost the U.S. Treasury an estimated
$30-60 billion in lost revenues from corporation tax, plus
$40-70 billion from individuals, according to the office of
Senator Carl Levin, who is sponsoring the bill.
Switzerland holds around $2 trillion of estimated global
undeclared assets, according to the Boston Consulting Group.
Revenue generated from this could be squeezed as a U.S. probe of
its biggest bank UBS dilutes banking secrecy.
Yet analysts say the Swiss, whose GDP in 2008 was about 530
billion Swiss francs ($460 billion) according to the
International Monetary Fund, are less likely to meet opposition
to the low-tax regimes that draw foreign companies: these are
deemed less harmful tax avoidance, rather than evasion.
"They are still making some money by having lower taxes on
companies," said Lee Sheppard, contributing editor to Tax Notes,
a tax journal based in Washington DC.
"But they're not ever going to be making the amount that
other governments are annoyed about losing."
Analysts note that because Switzerland has its own tax
treaty with the United States, blacklisting it at a corporate or
individual level could cause unproductive diplomatic incidents.
Low-tax jurisdictions like Bermuda or the Cayman Islands
look more vulnerable because they have less diplomatic clout,
which is prompting some companies to head for Switzerland.
The European Commission, the European Union's executive
body, has said the tax regimes in cantons like Zug, Schwyz and
Obwalden are a form of state aid: it wants Switzerland to end
favourable treatment of foreign-earned profits.
Switzerland, which is not a member of the EU, denies the
cantons' special status violates its free trade deal with the
bloc and rejects negotiations with Brussels on fiscal matters.
But it has pledged to consider some other company taxation
regulations the EU has objected to, such as the status of
foreign companies, aiming to ensure these go beyond thinly
staffed headquarters to invest and create jobs in Switzerland.
Baker & McKenzie's Frey thinks more companies will shift to
Switzerland, and Zug's Jud also highlighted the country's
neutrality and reliability as an attraction to energy companies
who do business in less stable countries.
"We are not reckoning on an unusually strong boom, but a
continual and sustainable growth on the scale of the last few
years and decades," Jud said.
Companies say Switzerland's attractiveness as a corporate
location goes beyond tax to include easy and efficient
transport, a high quality of life high and well-trained staff.
In the current climate, the attractions for the companies
that move clearly outweigh one drawback: by making the switch
they potentially sacrifice inclusion in stock market indexes
such as the closely watched benchmark Standard & Poor's 500.
"In the past and most recently with Transocean, Standard &
Poor's has ruled that the process of redomesticating to
Switzerland renders a company 'ineligible for continued
inclusion' in the S&P 500," said Macquarie Research analyst
Angie Sedita in a note.
In buoyant times, inclusion in such indexes has offered
access to equity capital. But the S&P 500 has fallen more than
50 percent since October.
(Additional reporting by Braden Reddall in Houston; Editing by
($1=1.158 Swiss Franc)