The municipal business tax (also commonly known as "TPC") has existed since 1798. It was introduced during Napoleon's occupation of Geneva and is now in its final stages.
What is local business tax in a nutshell?
The TPC is governed by articles 301 to 318C of the law on public contributions (LCP, RS/GE D .3 05). It is a tax levied on the commercial activities of legal entities and individuals carrying out self-employed activities in the communes of Geneva. This tax is levied by the communes, which can decide whether or not to levy it - this is the case for 12 communes that have decided not to levy this tax (Anières, Cartigny, Collex-Bossy, Collonge-Bellerive, Cologny, Corsier, Genthod, Gy, Laconnex, Pregny-Chambésy, Troinex and Vandoeuvres).
The TPC is based on 3 elements:
- The average turnover over the last two years (rate according to the professional group, in other words the company's sector of activity);
- The average rent for premises and land occupied for professional purposes (taxed at 0.5%);
- The average number of people working in the company (taxed at 10.-/employee).
The taxation system is called "praenumerando bisannual". The tax period and the calculation period are 2 years. A tax is calculated on the basis of the previous 2 years, then renewed the following year.
Why is this tax in its final stages?
For a number of years, opponents of this obsolete tax have been calling for it to be abolished. This is because the tax does not take into account the real financial situation of companies and the self-employed, since the CGT taxes income without taking into account expenses and profits. In other words, the CGT is levied even if the taxpayer is making a loss (non-compliance with the taxpayer's ability to pay). The applicants also point out that the CGT is specific to Geneva and does not exist in any other canton, which is a competitive disadvantage and could hinder the establishment of companies in the canton.
A new initiative, "Pour l'abolition de la taxe professionnelle" ("For the abolition of business tax"), tabled in 2022, has therefore been successful. After study, this initiative - if accepted - would deprive Geneva's communes of nearly €200 million in revenue. It should be noted that the Geneva State Council and the communes are opposed to this initiative. Unsurprisingly, the Grand Council rejected it on 13 October 2022.
However, a counter-proposal has been drawn up and was recently adopted (in May 2023) by the Geneva Grand Council. Contrary to the popular initiative, this counter-proposal would compensate for the abolition of the CCT by increasing corporate income tax from 14% to around 14.7%. This effective rate is still provisional and may vary depending on which municipality the company is domiciled in, as is already the case today. In its current form, the counter-proposal indicates an effective tax rate that could vary between 14.66% and 14.84% depending on the different solutions analysed.
This tax increase should be achieved simply by introducing additional supplementary centimes on the cantonal tax on the profits of legal entities. Several variants are currently being studied, including the method of redistribution from the canton to the communes, the amount of the increase in cantonal additional levies, and so on. According to the latest shared estimates, the counter-proposal should more than compensate for the tax loss resulting from the abolition of the CCT. It should be noted that the initiative committee will withdraw its text if there is no referendum on the counter-proposal.
While a number of initiatives in the past have failed to abolish the CCT, in particular because of the Grand Council's rejection, the latter's reversal in 2023 can easily be explained. The counter-proposal makes it possible to accompany the implementation at federal level of the international reform aimed at combating the tax planning strategies of multinational companies (the "Base Erosion Profit Shifting" (BEPS) programme), since the new tax created, as a tax on profits, is recognised in accordance with international standards and is taken into account in calculating the minimum effective tax rate of 15% for multinationals (see our article on this subject). For the companies concerned, this means that they are not at a disadvantage compared with companies in other cantons or internationally. This is not the case with the CCT, which is not recognised as a tax under the new international standards, and therefore constitutes a tax burden for companies that cannot claim it as part of compliance with minimum taxation. As a reminder, the Swiss people will be asked to vote on the introduction of this minimum tax on 18 June 2023.
Furthermore, no date for the entry into force of the counter-proposal has yet been given. We will, of course, keep you informed of the progress of this initiative and its outcome.