Fotos: Désirée Good

Tax para­digm shift

The canton of Zurich is strengthening its position as a location for foundations with a new initiative. Carmen Walker Späh, Head of the Department for Economic Affairs, tells us just how important foundations are to the canton and explains the recent tax exemption changes.

Are foun­da­ti­ons important to the canton of Zurich as a location?

Defi­ni­tely. Foun­da­ti­ons are so important to the canton of Zurich as a loca­tion these days.

What makes them relevant?

Foun­da­ti­ons do good in society. So they have a direct posi­tive impact on the canton. But they also buy goods and services from busi­nesses based in the canton. Their acti­vi­ties gene­rate added value – by brin­ging rese­ar­chers to Zurich, finding funding for exhi­bi­ti­ons, attrac­ting tourists to the muse­ums, and so on. On the whole, foun­da­ti­ons streng­then rese­arch, educa­tion, social affairs and health­care in the canton. The canton of Zurich is the engine driving the Swiss economy. And foun­da­ti­ons are play­ing a huge part in that.

Have you known this all along?

I’ve always appre­cia­ted and respec­ted foun­da­ti­ons. But I only reali­sed the extent of it when I became the Head of the Depart­ment for Econo­mic Affairs. The figu­res show the sector’s contri­bu­tion to rese­arch and inno­va­tion, which allows Switz­er­land to find new solu­ti­ons and approa­ches for the bene­fit of the whole world. It’s simply wonderful.

What can foun­da­ti­ons do better than the govern­ment or the private sector?

Foun­da­ti­ons can take so many more risks than the govern­ment or private sector. They can cham­pion new and unknown inno­va­tions at a much earlier stage. To be honest, foun­da­ti­ons are the expe­ri­men­tal labs in our society. They can go ahead and take action where the private sector would be held back without a busi­ness case and the govern­ment would be lack­ing legi­ti­macy for regu­la­tory reasons. The combi­na­tion of state and private funding is parti­cu­larly inte­res­t­ing. Foun­da­ti­ons can jump in when there are gaps in the state or private funding. You can see this in action most clearly at our univer­si­ties. Foun­da­ti­ons often fund some­thing special on top, so they go beyond the basics.

What impe­tus can foun­da­ti­ons give society and the location?

As a foun­da­tion loca­tion, the canton of Zurich has over 18 billion Swiss francs in assets. Contri­bu­ti­ons from foun­da­ti­ons open doors for a whole host of initia­ti­ves and projects in rese­arch, educa­tion, social affairs and envi­ron­men­tal matters. When this poten­tial is harnes­sed even more effec­tively, you see fresh impe­tus. This impe­tus comes from the fact that foun­da­ti­ons are inde­pen­dent and in a strong posi­tion to take risks.

Is that why the canton of Zurich wants to become an even stron­ger loca­tion for foundations?

The canton of Zurich has over 2,200 foun­da­ti­ons, which is more than any other canton in Switz­er­land. But things are moving in the wrong direc­tion. The number of newly estab­lished foun­da­ti­ons has been on the decline for years and there are more liqui­da­ti­ons in Zurich than in any of the other cantons. We want to turn this around. And that’s why we’ve laun­ched the campaign for the canton of Zurich as a loca­tion for foundations.

What impro­ve­ments are required?

The study published by the govern­ment about us as a loca­tion for foun­da­ti­ons in 2021 indi­ca­ted that work is needed in a number of areas. For one thing, we need impro­ve­ments rela­ting to tax and regu­la­tory requi­re­ments. We also want to improve visi­bi­lity for the foun­da­tion sector and the important work it does. And become more acces­si­ble on the admi­nis­tra­tion side. This is exactly why we laun­ched a series of events called ‘Canton of Zurich Foun­da­tion Conver­sa­ti­ons’ last autumn at the Depart­ment for Econo­mic Affairs in part­ner­ship with Swiss­Foun­da­ti­ons. We also opened a new advi­sory office and published a website that lists all the foun­da­ti­ons in the canton and promo­tes transparency.

Who is behind the initiative? 

It’s a loca­tion-speci­fic matter, so it was driven by my Depart­ment for Econo­mic Affairs. But the whole Govern­ment Coun­cil was on board with the actions invol­ved. Finance and Justice are the two depart­ments that have gone above and beyond to show how happy they are to coope­rate with the foun­da­tion sector.

‘This is the start of our buil­ding a modern foun­da­tion system that works effec­tively and meets today’s standards.’

Carmen Walker Späh, Head of the Depart­ment for Econo­mic Affairs Canton of Zurich

You’re curr­ently in a two-year imple­men­ta­tion phase. What are you expec­ting the outcome to be?

I truly believe that the initia­tive will pay off. We’ll have to wait and see whether the canton’s point of cont­act for foun­da­ti­ons proves its worth, what the bene­fits of insti­tu­tio­na­li­sed dialo­gue between acade­mia, foun­da­ti­ons and admi­nis­tra­tion are, what impact the inter­na­tio­nal posi­tio­ning has, and whether the regu­la­tory impro­ve­ments have been positive.

Zurich had a repu­ta­tion for being diffi­cult as far as tax exemp­tion was concer­ned. But the canton took a huge step and made chan­ges to the tax arran­ge­ments in Febru­ary. How did that come about?

Every canton in Switz­er­land has its own tax arran­ge­ments. If you ask me, the fact that our fede­ral system allows for this leads to healthy compe­ti­tion at the top level. Govern­ment legis­la­tion only provi­des a frame­work here. The tax office for the canton of Zurich reviewed the arran­ge­ments in light of various ques­ti­ons surroun­ding the nonpro­fit status of tax-exempt foun­da­ti­ons. It’s adap­ting to the latest deve­lo­p­ments within the foun­da­tion sector.

Did you commis­sion a study through Andrea Opel to under­pin the chan­ges to the arrangements?

We’re brea­king new ground. The Depart­ment of Finance, headed up by Govern­ment Coun­cil­lor Ernst Stocker, is taking a huge step. We wanted to conso­li­date our work. And so we brought Andrea Opel on board as one of the best-known profes­sors working in tax legis­la­tion in Switz­er­land. People take what she says seriously. And that includes the govern­ment and the Swiss Tax Confe­rence. Her expert opinion had a posi­tive impact on the chan­ges to the tax arran­ge­ments being made by the tax office for the canton of Zurich.

Why have the chan­ges been made?

We’re talking about a funda­men­tal shift to the arran­ge­ments for tax exemp­tion. This will streng­then the canton of Zurich’s posi­tion as a loca­tion for foun­da­ti­ons in the long term. This is the start of our buil­ding a modern foun­da­tion system that works effec­tively and meets today’s stan­dards. I’m confi­dent that this will give the canton of Zurich the edge in Switz­er­land and in compa­ri­son with other cantons.

What exactly is changing?

Chari­ta­ble foun­da­ti­ons will be able to give members of their boards of trus­tees compen­sa­tion going forward. This is a huge change. If we want the foun­da­tion sector to become more profes­sio­nal, we need profes­sio­nals on boards of trustees.

How much compen­sa­tion is acceptable?

It has to be appro­priate. The Foun­da­tion Super­vi­sory Autho­rity will be checking that compen­sa­tion is reasonable and propor­tio­nate. This is a new respon­si­bi­lity they’ve taken on.

Foto: Dési­rée Good

What else is changing?

Nonpro­fit acti­vi­ties abroad will now be judged by the same stan­dards as acti­vi­ties within Switz­er­land. This will allow Zurich to welcome more inter­na­tio­nally active foun­da­ti­ons to the canton. For exam­ple, foun­da­ti­ons working in climate and envi­ron­men­tal protec­tion or inno­va­tion and digi­ta­li­sa­tion. This is a really posi­tive deve­lo­p­ment in my mind. Of course, this scope is always rest­ric­ted to nonpro­fit acti­vi­ties. The third change is that nonpro­fit foun­da­ti­ons in the canton of Zurich will be able to apply busi­ness funding models from now on.

What does that mean?

Their funding acti­vi­ties are no longer rest­ric­ted to non-repa­ya­ble contri­bu­ti­ons or loans. In future, they will also be able to make impact invest­ments. The prere­qui­site here is that foun­da­ti­ons are only opera­ting where no market alre­ady exists. In other words, they’re not compe­ting against inves­tors who aren’t exempt from tax.

What do these chan­ges mean for Zurich as a loca­tion for foundations?

The new tax arran­ge­ments in the canton of Zurich are brin­ging about a para­digm shift. As a result of these chan­ges, Zurich will become one of the most inno­va­tive and foun­da­tion-friendly cantons in Switz­er­land. Maybe even in the world. I can’t tell you how exci­ted I am about streng­thening Zurich’s posi­tion as a loca­tion for foun­da­ti­ons in such a sustainable way.

Are there areas where you think more invol­vement from phil­an­thropy is needed?

There’s still poten­tial in networ­king. We won’t get very far without it. We need to do a better job of combi­ning the skills that are alre­ady there. Looking at the speci­fic chal­lenges and oppor­tu­ni­ties facing all of us and the canton of Zurich, I’m most keen to deve­lop more colla­bo­ra­ti­ons and public-private part­ner­ships. I’m thin­king of the strong invol­vement of nonpro­fit foun­da­ti­ons in the rese­arch world we alre­ady see happe­ning now.

You recently opened the Food­HUB.

It’s a good exam­ple of a network combi­ning exis­ting skills to become a power­house. Based on the poten­tial in busi­ness, rese­arch and inno­va­tion, the canton of Zurich is desti­ned to reap even more bene­fits from networ­king. Food­HUB is focu­sing on a timely topic, with food secu­rity beco­ming a growing global chall­enge. We may be a small coun­try, but we can still do our bit for the global commu­nity in this respect.

Do you see poten­tial in start-up funding?

Foun­da­ti­ons have to operate as nonpro­fit orga­ni­sa­ti­ons, which means their econo­mic acti­vi­ties are limi­ted. The main oppor­tu­nity I’ve iden­ti­fied in the start-up space, though, is funding ideas while they’re still making the tran­si­tion to commer­cial imple­men­ta­tion. We’re still miss­ing a strong pot that would allow us to provide seed money.

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