* 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 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
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
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
"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.