Switzerland's tempting tax regimes attract UK firms
The picturesque village of Pfaffikon looks out onto Alpine mountains.
Thirty minutes from Zurich and dotted with traditional dairy farms, it might seem an unlikely location for some of Britain's biggest hedge funds.
But it is one of a number of Swiss regions competing to offer ever lower tax rates in a bid to tempt British businesses to relocate.
The village, in the area of Höfe in Schwyz is clustered around a shimmering lake which reflects the lush green, rural backdrop.
However the scenery is also now increasingly dominated by building sites as it reinvented itself as a hedge fund centre by offering low personal tax rates to attract cash-rich fund managers.
Spa hotels and up-market furniture retailers are springing up on the outskirts to cater for the new clientele.
Around the lake, glass-fronted office developments are being squeezed in-between traditional Swiss chalets. One of these is a recently opened 'hedge fund hotel'.
"It's an incubator for hedge funds," said Marcel Jouault of the business promotion department at Pfaffikon.
"We have a lot of interest from hedge funds who want to come here for the lowest tax rates in the country, they are often spin offs from banks who are used to being in a big infrastructure, so they need a back office, middle office, and secretarial support. We offer a hedge fund hotel to do all that."
The village now has over US$100bn (£62.45bn) of assets under management and can boast that one in nine of its 10,000 inhabitants is a millionaire.
Attracted from London by the low personal tax of just 18% wealthy fund managers are keen to avoid the 50% UK tax levied on earnings over £150,000 a year.
The village is already home to one of the two headquarters of the Man Group, the world's largest publicly traded hedge fund.
This combination of existing funds and low tax is expected to attract further relocations from London.
"We are getting a lot of enquiries from the UK. Many hedge funds are in the process of establishing here, and many more are coming and looking around," said Marcel Jouault.
"I've been here six years and I've never known it so crazy."
In Switzerland the drive to attract investment has led to fierce tax competition between different Cantons. The beneficiaries include foreign companies, many from the UK, who can shop around for the best tax deal.
Sixty kilometres away from Pfaffikon, the low tax regime in the larger town of Zug is also attracting some of the world's biggest multinational companies, many setting up their headquarters in the town.
"Our philosophy is to offer the lowest taxes possible. The minimum tax a company would pay here in Zug is just 8.8% tax," said Dr Bernhard Neidhart of the Zug Office for Economy and Labour.
The prospect of a tax saving of around 20% when compared to UK corporation tax has led some of Britain's biggest companies to the town. Last month Warwickshire-based plumbing giant Wolseley announced it was making the move in a bid to save an estimated £23m in British taxes.
"There's no sign of the recession in Zug," said Robert Baldwin of Packimpex, a relocation company.
"We are dealing with some very large UK companies now who are looking at Zug specifically. When they move it will certainly hit the headlines in the UK."
But although Zug is home to 29,000 registered companies, not all have a physical presence.
In June 2008, the high street chemist, Boots, which has a 150-year history in Nottingham, moved the registered head office of its parent company, Alliance Boots, to Zug.
On its website the company gives its address as Baarerstrasse, a central street in Zug.
But a visit to the address, an office block, opposite a pizza takeaway and a hotel, revealed that there is no physical office location in the town. Instead, the registered office is housed in a Swiss post office - in an anonymous post office box alongside dozens of others.
The company denies its registration in Zug is a device to avoid UK corporation tax payments, and says it does have a Swiss administrative office based in Zurich.
"We believe that having a Swiss presence enhances the position of Alliance Boots as a leading international pharmacy-led health and beauty group" said George Fairweather, group finance director at Alliance Boots.
"Alliance Boots complies fully with the relevant local tax legislation in each of the countries in which it operates," he added.
Although Zug is benefiting from an influx of foreign companies, there's concern that simply facilitating the legal registration of companies without attracting the physical relocations of staff and operations will have little long term economic benefit.
"There is a problem with companies coming in as 'brass plates'," said Robert Baldwin.
"The Canton would like to see companies make a real commitment and employ local people."
In the meantime, the taxation battle between different Swiss regions continues to drive tax rates down. Earlier this month Pfaffikon announced plans to cut its tax rates to the lowest in Switzerland from 2011.
The gauntlet is down to see if other regions will be prepared to beat that by continuing to cut rates yet further.
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