Swiss clamping down on Bonny dodgers

The holding company at the centre of the probe is the Brazilian Vale, newspaper Tages Anzeiger reported. Domiciled in Switzerland, it is one of the three largest mining companies in the world.

The abuse has been made possible by the so-called Bonny Decree, which enables cantons to negotiate special tax arrangements with foreign companies as a way to lure them to Switzerland.

But such deals are only attractive to Switzerland if the company keeps its side of the bargain.

The current complaint claims that Vale has failed to provide sufficient consideration for the favourable treatment it receives.

In particular, the company has only one office in Switzerland and less than 100 people employed, despite benefiting from its arrangement to the tune of several hundred million francs a year.

Vale has a market capitalization of over $140 billion and the last dividend paid to shareholders came to $12 billion. The company reported that last year it made the “highest net earnings of its history”.

When faced with such results and considering the meagre extent of the company’s contribution, the authorities have decided to try to secure a bigger piece of the pie for Switzerland.

But mediation attempts to amend the Bonny Decree arrangement failed, and the government’s legal teams are now taking the matter to the local administrative court. 

The aim is to claw back the tax provisions made under the Bonny Decree in order to re-assess the taxes paid by the company for the past five years.

Vale is not the only company accused of taking advantage in this way.

Many other foreign companies, particularly in the canton of Vaud and including some described by Tages Anzeiger as “disreputable”, have moved in to benefit from the tax arrangements.

They pay little or no taxes, fail to contribute anything to the Swiss economy, do not create local jobs nor forge relationships with the local universities.

Switzerland’s highly preferential tax treatment of foreign holding companies already attracts criticism from the EU.

Rudolf Strahm, former member of the Social Democratic Party and the national price regulator, believes that Switzerland runs a “reputational risk” by allowing foreign companies to benefit in this manner.