Tax para­digm shift

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.

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.

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.