Switzerland’s attractiveness for multinational corporations at risk

in Tax, 15.11.2016

Multinational corporations (MNCs) today face tough challenges, from rapidly changing customer needs and disruptive technologies to growing regulation and increased competition due to globalization. To survive – and thrive – in this environment, they need to transform their business. This means examining every aspect of their value chains and redesigning them – radically if necessary.

Initially drawn to Switzerland by the country’s competitive tax and business environment, many multinational corporations now feel that Switzerland’s advantages are at risk. This is the conclusion of a joint survey of more than 850 foreign-owned MNCs with operations in Switzerland, released on 15 November 2016 by KPMG in collaboration with the IMD World Competitiveness Center, Switzerland Global Enterprise and the Swiss-American Chamber of Commerce. KPMG asked over 90 executives of such companies if Switzerland still offers the flexibility and stability that companies in business transformation demand. Never before has a survey of this scale and depth been conducted.

Read on for some of the key highlights and insights of our comprehensive study “Clarity on Business Location Switzerland“.

Corporate taxes remain a crucial location factor

MNCs’ decision to locate their key value drivers in Switzerland is inextricably linked to tax planning. Some 68 percent of respondents cited Switzerland’s attractive tax system as one reason for their choice. A majority of companies benefit from a privileged tax status. Additionally, some 40 percent of MNCs located here are subject to the standard tax rate for at least part of their income. Just 42 percent of the companies located here, however, believe that a competitive tax system will still be one of Switzerland’s main advantages over the medium term.

Attractiveness for talents and flexible labor law in danger

MNCs fear the fallout if free movement of EU labor is restricted due to the mass immigration initiative. They are also concerned about Switzerland’s attractiveness to a highly qualified workforce from third countries. One particular problem lies in the restrictive permit practice since qualified professionals are capable of finding equally attractive career opportunities at other business locations.

Switzerland’s flexible labor law is an absolutely vital location factor: Almost every company located here considers Swiss labor regulations to be far more flexible and business-friendly than in any other country in Europe. Given recent changes in labor law, however, large numbers of MNCs worry that this key location advantage will be lost in the years to come.

Excessively high salary costs – especially in middle management

One of the biggest challenges of doing business in Switzerland is the high cost level, with labor costs considered to be particularly problematic. While salaries for executives in Switzerland might be on a par with comparable rival locations in other parts of the world, compensation paid to middle management has risen more sharply than labor productivity when compared to other business locations. Nevertheless, none of the respondents would welcome a return of the Swiss franc’s peg to the euro to help ease the cost.

Nothing new in innovation

Switzerland might have a global reputation as a leader of innovation, yet only a minority of foreign companies consider the capacity to innovate as a key location factor for developing new technologies or launching innovative business models in Switzerland. Just 44 percent of respondents believe that being in Switzerland makes their companies more innovative, and only 35 percent feel that an innovative environment will distinguish Switzerland from other countries in the coming years.

Central location counts

Quality of life and first-class infrastructures help Switzerland stand out as a competitive international location. Some 42 percent of respondents also see a business advantage in the country’s central geographic position.

Value Chain Analysis to assess Swiss fit

To successfully master business transformation, companies need to analyze how their key value drivers contribute to value and profit creation. Value Chain Analysis (VCA) can help management assess whether Switzerland is or will be the right location for key value drivers. A VCA reveals how best to align the business and tax models to create a sustainable and scalable value chain. Coupled with our survey findings, a tailored VCA can offer an objective assessment of the Swiss fit for a specific company in transformation.

Full survey: Clarity on Business Location Switzerland

 

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