Why Ticino: tax, production, workforce and logistics

The tax motive before 2020

The companies that settled in the Fashion Valley never concealed that taxation was one of their reasons. In 2012 Ticinomoda listed lower taxation compared with Italy among the main advantages of the canton, together with political stability, language, proximity to Milan, flexible labour law, customs warehouses and simplified bureaucracy. It put the corporate tax rate at about 25 per cent and the VAT rate at 8 per cent.¹ The figure of 25 per cent refers to the ordinary taxation of a Ticino company and understates the advantage that some principal companies enjoyed. Until the end of 2019 the Federal Act on the Harmonization of Direct Taxes of the Cantons and Communes allowed cantons to tax holding, domiciliary and mixed companies at reduced rates on their foreign-source income. Mixed companies whose business was mainly conducted abroad paid cantonal profit tax on only a fraction of their foreign profit.² A trading company that bought goods from Italian manufacturers and sold them to distributors outside Switzerland could fit this description. Its overall tax burden, including federal tax, could then lie well below the Italian combined rate of corporate income tax (IRES) and regional production tax (IRAP). The Federal Act on Tax Reform and AHV Financing (TRAF) abolished these cantonal regimes with effect from 1 January 2020. Chapter F.II describes the reform and its transitional rules for trading companies.

The tax motive had a second, less visible element. A principal company that owns the goods and bears the market risk is entitled, under the arm's length principle, to the residual profit of the distribution chain once manufacturers and sales companies have received a routine return. If the principal company sits in a low-tax jurisdiction, the group's overall tax rate falls even if each individual transaction is priced in accordance with the OECD Transfer Pricing Guidelines. The structure works only if the principal company really performs the functions and controls the risks that justify the residual profit. If decisions on collections, pricing, inventory and distribution are in fact taken in Florence or Milan, the Italian tax authority may attribute the profit to an Italian permanent establishment of the Swiss company. It may even treat the Swiss company as resident in Italy. This is the line of attack that the Italian authorities followed in the Kering case and in other fashion cases, described in the next section.³

Proximity to Italian production

Ticino's second advantage was its distance from the production districts of northern and central Italy. Biella, home of wool weaving, lies about two hours by road from Chiasso, and Como with its silk industry about twenty minutes. The leather goods district of Tuscany is about four hours away, the footwear districts of the Marche and of the Brenta about five. A finished product could leave an Italian workshop in the morning and reach a Ticino warehouse the same day. There it was checked, labelled with prices for different markets, packed in mixed consignments and sent on by road or air. For a group that sold Italian goods worldwide, the Ticino warehouse functioned as a regional distribution centre located a few kilometres outside the European Union.⁴

The location outside the European Union had costs as well as benefits. Goods entering Switzerland from Italy had to be declared to Swiss customs. When they returned to the European Union they had to be declared again and could be subject to EU customs duty if they did not qualify for preferential origin. In March 2004 the cluster was alarmed by a European Union measure that would have imposed a duty of 12 per cent on certain European-made goods that were re-exported to the Union after passing through Switzerland. The measure was due to take effect on 1 March 2004 and was postponed by three months after Swiss protests. Versace estimated the annual cost at CHF 3 to 4 million. The director of the logistics firm Veze stated that all his goods came from Italy or other parts of the Union and that 70 per cent of them returned there.⁵ The episode showed how dependent the cluster was on the rules of origin and the customs procedures that allow goods to pass through Switzerland without losing their European status. These procedures and the customs warehouses that make them possible are described below.

Notes

1. FashionNetwork (17 October 2012, above). ↩
2. Federal Act on the Harmonization of Direct Taxes of the Cantons and Communes of 14 December 1990 (Tax Harmonization Act, THA), SR 642.14, Art. 28 paras 2 to 5, repealed by section I 3 of the Federal Act of 28 September 2018 on Tax Reform and AHV Financing with effect from 1 January 2020, https://www.droit-bilingue.ch/fr-de/6/64/642.14-28-50.html. The precise taxation of individual fashion companies under these rules has not been published. ↩
3. Money.it (28 November 2018, above); Il Fatto Quotidiano (9 May 2019, above). ↩
4. Road distances and travel times are approximate and are given as illustration; the regional distribution function is described in Maggi and Mini (May 2013, above) and swissinfo.ch (12 March 2004, above). ↩
5. swissinfo.ch (12 March 2004, above), which describes the measure as a customs tax on re-exports. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of August 2025.