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May 23, 2023
Geneva Parliament votes to abolish the Geneva Municipal Business Tax
On 11 May 2023, the Geneva Parliament voted to abolish the Geneva Municipal Business Tax (MBT; in French: taxe professionnelle communale) with a broad political consensus.
If no public vote (referendum) takes place, the abolishment should be effective on 1 January 2024. In other words, no MBT would be due for fiscal years 2024 and following.
This change would abolish an old and complex tax, simplify compliance obligations and reduce related costs. The change offers an efficient solution for companies within the scope of BEPS 2.0 Pillar Two, potentially reducing overall tax expense.
The MBT has been levied since 18th Century by the municipalities of the canton of Geneva. Imposition of the MBT is based on:
The tax rate varies depending on the company's activities deployed in the canton.
Numerous multinational enterprises (MNEs) that benefitted before 2020 from the so-called preferential mixed company tax regime encounter complicated and burdensome rules. They are currently subject to MBT on their Swiss-sourced turnover on the one hand, and on their foreign-sourced qualifying expenses on the other hand. For certain foreign-sourced activities, the MBT burden recently increased significantly.
Upon the abolishment's entry into force, municipalities' loss of MBT revenues would be compensated through a corresponding increase overall of the corporate income tax (CIT) rate. The combined (federal, cantonal and communal) CIT rate would increase on average from the current 14% to 14.7%. This increase would be shared between communes based on certain formulas.
These changes should be more efficient for the companies in scope of Pillar Two of BEPS 2.0. The increased CIT could still be below the 15% global minimum tax rate and, with the MBT abolished, the overall tax expense for affected MNEs could decrease, particularly as duplication of expenses such as a top-up tax plus MBT would be eliminated.
Concerned MNEs and small and medium-sized enterprises will want to consider:
For additional information with respect to this Alert, please contact the following:
Ernst & Young Ltd, Geneva
Ernst & Young LLP (United States), Swiss Tax Desk, New York
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor