While Switzerland generally is a low-tax country -- at least by European standards -- the tax rate on hedge funds if far too high and London dominates the European market. Thanks to this tax competition, Switzerland is moving to lower its tax rate, showing that even tax havens sometimes need jurisdictional rivalry to control the burden of government.
The Swiss government is reportedly mulling a plan to improve the tax regime for hedge funds in a bid to lure more fund managers away from London, which currently dominates the European hedge fund industry. ... One of the key proposals that has been floated includes a special 10% rate for the fund industry, amounting to an effective cut in the marginal tax rate of 35%. "The financial marketplace is of enormous importance to our country," Merz was quoted as observing in the report. "I know that we have a disadvantage in taxes. We understand the problem, and we have to solve it." ... Switzerland had been overtaken by competitors which offered more flexible regulatory structures, lower taxes, and access to the lucrative EU market on preferential terms. However, Merz told Bloomberg that the new policy was not designed as a "frontal attack" on London's hedge fund dominance, but was aimed at stimulating greater jurisdictional competition for fund business in Europe.