Sustainably strengthening Switzerland as a center of research – without subsidies 

However, as shown by a study performed by KPMG and the University of St. Gallen (HSG), surrounding European countries, the USA and particularly Asian countries have succeeded in considerably boosting the attractiveness of their locations through the use of targeted tax incentives for research and development. In part, this is why Swiss companies are shifting more and more of their R&D activities abroad. In 2008, expenditures by Swiss companies for R&D activities abroad already reached CHF 15.8 billion while those in Switzerland only amounted to CHF 12 billion. That trend has intensified considerably over the past few years.

This finding was confirmed by a survey of listed companies and large, privately-held enterprises conducted by KPMG and the Swiss-American Chamber of Commerce. Some 60% of companies surveyed indicated their intent to reduce R&D activities in Switzerland over the next 5-10 years.

In light of the extremely strong Swiss franc, rampant national debt and currently weak economic development, KPMG considers tax breaks for private R&D expenditures to be a necessary and extremely effective instrument for Switzerland to strengthen its own capacity for innovation as an R&D location. The advantage of tax-based measures as opposed to governmental subsidies lies in the fact that the former are kosher from a regulatory perspective, do not constitute industrial policy measures and benefit SMEs in particular. These will strengthen Switzerland as a business location over the long term and secure local jobs.

In consideration of the international environment and the HSG study, KPMG proposes structuring an R&D promotional scheme in Switzerland as follows:

• All ongoing R&D expenditures can be deducted from the tax base at a rate of 130% (no upper limit) 
• Higher deduction rate of 170% for R&D expenditures of up to CHF 10 million 
• Ability to carry forward interest-bearing tax breaks for an unlimited time if they cannot be fully exploited during their first year of origin due to the fact that the tax base is too small
• Cash payment of unused tax breaks in very small business and start-ups 
• Flexibility when defining the withholding rate at the cantonal level

The system proposed might not yet be enough to put Switzerland at the top of international rankings with regard to R&D promotion, yet it would considerably improve the country’s standing. Above all, however, this would put a stop to the exodus of innovative companies with great growth and employment potential while encouraging an influx of such companies.P>

A tax break for R&D activities would significantly cut costs which, in turn, would improve Switzerland’s ability to compete.

(Graph provided by HSG, based on data from the OECD. The “B index” summarizes all key tax aspects of capital use costs. It measures how much one unit of R&D actually costs a company. This value is equal to 1 and any actual subsidy rates which apply within the various countries are deducted from this amount.)