A well-designed regional tax treaty to which developing countries are signatories will include provisions securing minimum withholding taxes on investment income and technical service fees, a taxing right in respect of capital gains from indirect offshore transfers, and guarding against-treaty shopping. A tax treaty policy framework—national or regional—that specifies the main policy outcomes to be achieved before negotiations commence would enable developing countries with more limited expertise and lower capacity for tax treaty negotiations to avoid concluding problematic tax treaties. This note provides guidance for members of regional economic communities in the developing world on what should and should not be included in a regional tax treaty and how to design on a common tax treaty policy framework for use in negotiations of bilateral tax treaties with nonmembers.
The Swiss economy has performed relatively well since the global financial crisis. Growth compares favorably with most other advanced countries and aggregate employment has grown robustly. The fiscal position is strong and the external trade surplus remains large and stable despite several episodes of intense appreciation pressure owing to the Swiss franc’s reputation as a safe haven. Growth is expected to temporarily dip to 1.1 percent in 2019 on weakness in external demand. Risks to the outlook are tilted down. Switzerland is also facing several policy challenges: low interest rates are fueling risks in the real estate and mortgage markets; persistent subdued inflation has decreased the operational space for monetary policy; and population aging and technological change will require further upskilling and generate new demands for public resources.
This 2018 Article IV Consultation highlights that the Swiss economy has adjusted to the large cumulative exchange rate appreciation that took place since the global financial crisis. After a subdued start to 2017, GDP growth accelerated to 1.1 percent in 2017, and the positive momentum continued in Q1:2018, although at a slightly reduced pace. The improved external outlook, together with the depreciation since mid-2017, are expected to energize the economy and lift GDP growth to 2.25 percent in 2018, before it gradually moderates to 1.75 percent over the medium term. Inflation is expected to increase to the upper half of the target band in 2018–19, and to subsequently revert to the mid-point.
This Selected Issues paper analyzes key features of corporate taxation in Switzerland. The Swiss corporate tax system includes many aspects of a territorial regime; is highly attractive for multinational companies; and collects non-negligible revenues, but the status quo is not sustainable. The proposed reform would eliminate differences in the tax treatment of foreign and Swiss sourced income. Further, cantons are expected to lower their corporate income tax (CIT) rates, bringing the combined (municipal, cantonal, and federal) tax rate (averaged across cantons) to about 13.9 percent. Costs of lowering the CIT rates would be unequally distributed across cantons, and would be costlier for cantons with a large immobile CIT base.
Benjamin Carton, Emilio Fernández Corugedo, and Mr. Benjamin L Hunt
This paper uses a multi-region, forward-looking, DSGE model to estimate the macroeconomic impact of a tax reform that replaces a corporate income tax (CIT) with a destination-based cash-flow tax (DBCFT). Two key channels are at play. The first channel is the shift from an income tax to a cash-flow tax. This channel induces the corporate sector to invest more, boosting long-run potential output, GDP and consumption, but crowding out consumption in the short run as households save to build up the capital stock. The second channel is the shift from a taxable base that comprises domestic and foreign revenues, to one where only domestic revenues enter. This leads to an appreciation of the currency to offset the competitiveness boost afforded by the tax and maintain domestic investment-saving equilibrium. The paper demonstrates that spillover effects from the tax reform are positive in the long run as other countries’ exports benefit from additional investment in the country undertaking the reform and other countries’ domestic demand benefits from improved terms of trade. The paper also shows that there are substantial benefits when all countries undertake the reform. Finally, the paper demonstrates that in the presence of financial frictions, corporate debt declines under the tax reform as firms are no longer able to deduct interest expenses from their profits. In this case, the tax shifting results in an increase in the corporate risk premia, a near-term decline in output, and a smaller long-run increase in GDP.
This paper discusses the theory and practice of tax design to achieve an efficient and equitable outcome, i.e. in support of inclusive growth. It starts with a discussion of the key principles from tax theory to guide practical tax design. Then, it elaborates on more granular tax policy, discussing key choices in the structure of the personal income tax on labor and capital income, taxes on wealth, the corporate income tax, and consumption taxes. The paper concludes by highlighting the political economy considerations of the issues with concrete recommedtions as to how to implement tax reform.