The Tax Turn: From Crisis Measure to Business Model — a part of the book Zug: The Making of a Global Hub by Dr Alexander Ressos.
The Geneva volume begins its account of the financial centre with Calvin and the moral economy of credit. The corresponding chapter in the history of Zug is fiscal. Between the early 1920s and the late 1950s, the canton built, step by step, a tax regime designed to attract companies whose owners and operations lay elsewhere. What began as a modest and largely ineffective measure in a time of industrial crisis became, after the Second World War, the defining feature of the canton and the basis of its prosperity. Part B traces that development. Chapter I describes the interwar beginnings, the arguments for and against the first holding privileges and the debate about the morality of attracting foreign capital by low taxes. Chapter II follows the post-war take-off, from the tax law of 1947 to the arrival of the first commodity traders and the practice on mixed companies that made Zug a household name among international tax advisers. Chapter III examines the transformation of the regime under the pressure of federal harmonisation, international criticism and reform, from the harmonisation law of 1990 to the abolition of the cantonal status regimes in 2020, the national fiscal equalisation and the global minimum tax.
This part belongs to Zug: The Making of a Global Hub by Dr Alexander Ressos, published here in full, section by section.
A Swiss competition before Zug
Zug did not invent the tax privilege for holding companies. When the canton first discussed such a privilege in 1921, it could point to precedents in Schaffhausen, Zurich, Solothurn and Glarus. Read more Zug · The Tax TurnThe revision of 1921 and the vote of January 1922
In Zug, the revision of the tax law in 1921 included, for the first time, a provision for the privileged taxation of holding companies. The revision was put to the people. Read more Zug · The Tax TurnThe lobbyist and the finance director
The failure of the 1924 law did not go unnoticed. Two men played a central role in the efforts to improve it. Read more Zug · The Tax TurnThe law of 15 July 1930
The decisive step came in 1930. On 15 July 1930, the canton enacted a law on the special taxation of legal entities, the "Gesetz betreffend die Sonderbesteuerung juristischer Personen". Read more Zug · The Tax TurnA moral economy of the small state
The holding privilege was controversial from the start. The arguments made against it in the 1920s anticipate almost all the criticisms that would be made of Zug's tax policy in the following… Read more Zug · The Tax TurnThe limits of the privilege: the 1930s and the war
The law of 1930 did not transform the canton overnight. Because the world economic crisis and the Second World War limited the flow of international capital, the number of holding companies in Zug… Read more Zug · The Tax TurnStability as a promise: reliance, grandfathering and the rule of law
The interwar experience taught the canton a lesson that it would apply for the rest of the century: a tax privilege attracts companies only if they can rely on it. Read more Zug · The Tax TurnThe economy on the eve of the take-off
At the end of the Second World War, Zug was a prosperous but unremarkable canton. Its income per inhabitant had exceeded the Swiss average since 1890. Read more Zug · The Tax TurnThe federal environment: banking secrecy, withholding tax and company law
The holding privilege of 1930 did not operate in isolation. Its attraction depended on the federal environment in which it was embedded. Read more Zug · The Tax TurnA Geneva comparison: the banker and the registrar
The contrast with Geneva, to which this book is a companion, is instructive at this point. In the interwar years, Geneva was already a banking centre of international rank. Read more Zug · The Tax TurnPractitioner's note: the holding company as a legal form
The holding company that the laws of 1924 and 1930 sought to attract was a legal form of Swiss company law and has remained one. Read more Zug · The Tax TurnThe Post-War Take-Off (1947–1990) — conclusion
Between 1947 and 1990, the canton of Zug built the business model that has defined it ever since. Read more Zug · The Tax TurnThe tax law of 1947
The post-war tax policy of the canton rested on a revision of the tax law that the voters approved on 16 March 1947 by 4,731 votes to 1,752. Only the commune of Neuheim voted against. Read more Zug · The Tax TurnFrom 88 to 4,828 holding companies
The effect of the post-war policy was slow at first and then dramatic. In 1949, the canton counted 88 holding companies. Read more Zug · The Tax TurnThe practice on mixed companies
The laws of 1930 and 1947 privileged holding companies and domicile companies, the latter being companies that had their registered seat in the canton but conducted no business there. Read more Zug · The Tax TurnPhilipp Brothers and the first commodity traders
The arrival of the American metals trader Philipp Brothers marks the beginning of the commodity trading cluster that would become the canton's most important industry. Read more Zug · The Tax TurnGerman groups, American multinationals and the headquarters economy
Others followed the commodity traders, who were the most visible beneficiaries of the post-war policy. Read more Zug · The Tax TurnThe anatomy of the three status companies
By the end of the 1950s, the tax regime of Zug distinguished three kinds of companies that enjoyed special treatment, in addition to the ordinary companies that were taxed at the general rates. Read more Zug · The Tax TurnWhy the capital came: neutrality, stability and the Cold War
The tax privileges explain why international companies chose Zug over other Swiss cantons. They do not fully explain why they chose Switzerland. Read more Zug · The Tax TurnThe political economy of consent
The tax policy of Zug was never the policy of a single party or a single government. Read more Zug · The Tax TurnSteuerfüsse and the rate competition
The cantonal tax system of Zug, like that of most Swiss cantons, works with a "Steuerfuss", a multiplier. Read more Zug · The Tax TurnThe economic result
The effects of the post-war tax policy on the economy of the canton were profound. Zug's share of Swiss national income doubled, from 1.2 per cent in 1965 to 2.5 per cent in 2005. Read more Zug · The Tax TurnThe critics
The success of the tax policy did not silence its critics. Those of the post-war period repeated, in new forms, the arguments of the 1920s. Read more Zug · The Tax TurnHarmonisation, Equalisation and Reform (1990–2026) — conclusion
Part B has followed the tax policy of Zug from its hesitant beginnings in the 1920s to the global minimum tax. Three phases stand out. Read more Zug · The Tax TurnFederal harmonisation: codifying the model
The Swiss constitution of 1874 had preserved the cantonal sovereignty in direct taxation that the constitution of 1848 established. Read more Zug · The Tax TurnInternational pressure: the European Union and the OECD
The codification of the status regimes in federal law coincided with the beginning of international pressure against them. Read more Zug · The Tax TurnFrom USR III to the TRAF
The first attempt at reform failed. The federal Corporate Tax Reform Act III, which proposed to abolish the status regimes and to offer the cantons a set of new instruments, including a patent box… Read more Zug · The Tax TurnThe implementation in Zug
The canton implemented the TRAF through a partial revision of its tax law, the sixth, which entered into force on 1 January 2020. Read more Zug · The Tax TurnThe holding company after 2020
For the classic holding company, the reform changed above all the form of taxation. Since 1 January 2020, a holding company in Zug is taxed on its profits at the ordinary rate. Read more Zug · The Tax TurnThe taxation of individuals and the lump-sum regime
The fiscal attractiveness of Zug has always extended to individuals. The canton's income and wealth taxes, which it has repeatedly lowered, are among the lowest in Switzerland. Read more Zug · The Tax TurnThe national fiscal equalisation
Low taxes in Zug have a counterpart: the canton's contribution to the national fiscal equalisation. Swiss federalism has long combined competition between the cantons with mechanisms of solidarity. Read more Zug · The Tax TurnThe global minimum tax
The latest challenge to the canton's model comes from the agreement of the OECD and the G20 on a global minimum tax for large multinational groups, known as Pillar Two. Read more Zug · The Tax TurnPractitioner's note: rulings, substance and relocation
In daily practice, three features of the Zug tax environment matter as much as the statutory rates. The first is the practice of advance tax rulings. Read more