The Attraction of Tax Breaks: Switzerland Grows into Global Commodities Hub

Published on Spiegel Online International, by Alexander Jung and Anne Seith, June 29, 2012 (see also the Photo Gallery).

Switzerland has quietly developed into the global center of commodities trading. Critics say the industry’s business practices in countries such as Congo and Zambia are immoral, and that it puts profits before people … //

… Sanctuary for Kleptocrats and Tax Evaders:  

  • Ironically Switzerland, a country with few natural resources to speak of, has grown into one of the most important centers for the global commodities industry in recent years. In Switzerland, companies encounter optimal tax conditions, sympathetic officials and an army of lawyers and bankers who specialize in the needs of the deep-pocketed industry.
  • Companies like Glencore now process 15 to 25 percent of the global trade in ore, copper, oil and agricultural products from their headquarters in Switzerland. Net revenues in the industry have increased by a factor of 15 between 1998 and 2010.
  • Proponents see the new booming sector as a replacement of sorts for the banking industry, which hasn’t been flourishing for some time, but critics are worried about their country’s already damaged reputation. “For decades, our image was that of a worldwide sanctuary for kleptocrats and tax evaders. Now we are in the process of cleaning that up, and already we are pursuing the next dubious business model,” says criminal law professor Marc Pieth, chairman of the Working Group on Bribery in International Business Transactions at the Organization for Economic Cooperation and Development (OECD).
  • Glencore, one of the world’s largest trading companies of its type, is headquartered only a few kilometers from Rüschlikon, in a town called Baar, which prides itself on being “one of the lowest-tax municipalities in Switzerland.” From his office there, CEO Glasenberg runs a corporate empire, active in 40 countries, with a large network of subsidiaries and partnerships around the world. In 2010, the company controlled about 60 percent of the international zinc trade, 50 percent of the accessible copper and 45 percent of the lead market. In 2011, Glencore’s had profits of $4.3 billion, with annual sales increasing from $21 billion in 1998 to $186 billion.
  • Glasenberg wants the company to continuing growing. He is currently working on a merger with mine operator Xstrata, which has its headquarters not far from his office. If the plan succeeds, the resulting entity will be a giant with a market value of $80 billion, making it more valuable than Goldman Sachs or Volkswagen.
  • Despite its massive wealth companies like Glencore are still relatively unknown, because the industry is more secretive than almost any other.

As Safe as Disneyland: … //

… Favorable Tax Laws:

  • The country has another decisive advantage for companies: favorable tax laws. Most commodities traders in Switzerland call themselves “mixed companies,” which do more than 80 percent of their actual business abroad and, as a result, only pay taxes on a portion of profits. All told, the tax burden ranges from about 10 to 13 percent, depending on the canton, say officials with a major accounting firm. In Germany, the treasury demands almost three times as much.
  • Swiss companies usually have dozens of subsidiaries around the world, which they can use to combine the advantages of idyllic Switzerland with those in tax havens like Bermuda and the Netherlands Antilles, says Andreas Missbach, a tax expert with Berne Declaration, a Swiss non-governmental organization.
  • Missbach is one of the authors of the book “Commodities: Switzerland’s Most Dangerous Business,” which is currently causing a stir in his country. The results of painstaking research all over the world, on issues like the working conditions of workers in Congolese mines and on cotton plantations in Uzbekistan, have triggered a heated debate over whether and how Switzerland can monitor the booming industry.
  • “Companies like Glencore push profits and costs back and forth within their corporate group, to places where they pay the lowest taxes possible,” says Missbach. “Of course, this comes at the expense of poor countries.”

Development Aid or Exploitation: … (full text).

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