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.