Fair taxation: what lies ahead for SMEs in Vaud

Taxation is once again at the centre of the political debate, both in Bern and in the canton of Vaud. A cross-party committee has launched its campaign for the federal initiative ‘for fair taxation’, with a clearly stated aim: to prevent marriage from leading, in certain situations, to a higher tax burden than cohabitation. At the same time, the people of Vaud are set to vote on the so-called ‘12 per cent’ initiative, highlighting that the issue of tax levels and distribution remains a highly sensitive one in the canton.

For an SME, a self-employed person or a trust company, these debates are not merely political. They affect directors’ remuneration, family income planning, tax instalments, entrepreneurs’ personal cash flow and, at times, trade-offs between salary, dividends, a spouse’s employment rate or pension provision. Even when an initiative does not directly target businesses, it can alter the tax environment in which their owners, executives and employees operate.

Marriage at the heart of the debate on direct federal tax

The ‘For Fair Taxes’ initiative targets direct federal tax. According to the committee backing it, married couples should not pay more than cohabiting couples in a comparable financial situation. The issue centres on a concept well known to tax specialists: combining incomes on a joint tax return can, depending on the structure of the tax scale, push taxable income into a higher tax bracket. This is commonly referred to as the ‘tax penalty for marriage’.

The text put forward by the committee aims to maintain joint tax returns for married couples. This is an important point for both taxpayers and tax advisers: according to the information provided, the aim is not to introduce universal individual taxation, which would have entailed a different approach to filing tax returns and potentially more administrative work. The committee specifically emphasises the avoidance of an additional administrative burden.

The proposal also aims to take account of various family situations: couples where both incomes are similar, single-income households, or couples where incomes are distributed unevenly. It also advocates the view that a reduction in one spouse’s working hours, for example for family reasons, should not result in a tax disadvantage. Politically, the initiative is supported by the SVP, the Centre Party, the EVP, the UDF and the Swiss Farmers’ Union, according to information reported by Keystone-ATS.

Why entrepreneurs are also affected in their private lives

In many small businesses, the distinction between business and personal taxation is not merely theoretical. A self-employed person is taxed directly on the profit from their business. A director who is an employee of their own company, on the other hand, must balance their remuneration, any distribution of profits, the creation of reserves within the company and pension provision. Where a couple are taxed jointly, the spouse’s income and the family structure can influence the overall tax burden.

A reform of the tax regime for married couples can therefore have very tangible effects on annual tax planning. A couple in which one spouse runs a sole trader business and the other is in paid employment does not have the same tax profile as a couple where a single income supports the household. Similarly, a married entrepreneur who increases their salary to improve their social security cover or borrowing capacity may find that the effect varies depending on their spouse’s income and the applicable tax scale.

For a tax adviser, the challenge lies in avoiding jumping to conclusions. An apparent decrease or increase in tax should never be viewed in isolation. It is necessary to take into account social security contributions, pension provisions, advance tax payments, any deductions, the cantonal and municipal tax situation, as well as the household’s wealth management objectives. A federal reform may improve a situation in one case and have a more limited effect in another. Until the legislation has been finalised and implemented, caution remains essential.

In the canton of Vaud, the ‘12 per cent’ issue adds a political dimension

The situation in Vaud is also shaped by current tax developments. The press report mentions that residents of Vaud will be able to vote on the so-called ‘12 per cent’ initiative. The information provided does not allow us to detail here the exact content of the text, its voting schedule or its quantified impact. However, the mere fact that a cantonal vote has been announced confirms that the debate on taxation in Vaud remains open, particularly regarding the concept of fairness.

For businesses in the canton, this type of vote warrants particular attention. Cantonal taxation influences not only the attractiveness of a business location but also the disposable income of entrepreneurs and employees. It indirectly affects wage negotiations, households’ ability to absorb rising costs, and the decisions of certain taxpayers regarding where to take up residence. An SME does not relocate in response to every referendum, but it must factor tax developments into its assessment of the local economic climate.

Self-employed people in Vaud are particularly exposed to this interplay between business income and personal tax. Their taxable profit depends on the state of their business, tax-deductible expenses, investment policy and the setting aside of reserves or provisions where justified. A change to the cantonal framework can therefore influence the advance tax payments to be made, the cash reserves to be maintained at the end of the financial year and how to prepare the next tax return.

Tax fairness: a concept that appears simple but is complex in practice

The word ‘fair’ resonates with everyone, but it encompasses several different perspectives. For some, fairness means treating taxpayers with comparable economic capacity in the same way. For others, it involves taking into account household composition, family responsibilities, the organisation of domestic work or lifestyle choices. In taxation, these objectives can come into conflict with administrative simplicity and the predictability of the system.

The joint tax return for married couples illustrates this tension. It may be simpler for the household to manage, as incomes and deductions are combined. However, it can also create threshold effects when incomes are added together. Conversely, individual taxation may better reflect each person’s ability to pay, but it requires a more detailed breakdown of certain tax elements and may increase the administrative burden. According to its proponents, the federal initiative aims to address this penalisation without abandoning the joint tax return.

For SMEs, the issue is not merely theoretical. A couple weighing up a spouse’s level of employment, returning to work after a birth, paying a salary to a spouse working in the family business, or converting a self-employed business into a company must assess the tax and social security implications together. The right decision is not necessarily the one that minimises tax in the short term: it must also safeguard social security cover, financing capacity and legal certainty.

Planning ahead without overreacting to tax planning

When faced with initiatives currently under discussion or due to be put to a vote, the first mistake would be to change a business structure or remuneration strategy too hastily. A piece of legislation may be passed, rejected, amended in its implementation, or produce effects different from those anticipated. On the other hand, it is useful to prepare the necessary data: both spouses’ incomes, likely profit trends, advance tax payments already made, pension provisions, deductible expenses and liquidity requirements.

For an SME director, a meeting with their tax adviser before the end of the financial year can help to test several conservative scenarios. Should advance tax payments be adjusted to avoid any unpleasant surprises? Is the director’s salary consistent with the company’s results and social security contributions? Does the spouse actually work in the business and, if so, is their remuneration properly documented and justifiable? Are pension arrangements aligned with the tax situation and personal cash flow?

Fiduciaries play the role of interpreters here. They must translate what can sometimes be an abstract political debate into clear, tangible consequences: taxable income, estimated tax liability, cash reserves to be set aside, deadlines to monitor, and documents to retain. They must also emphasise that taxation is only one aspect of the decision-making process. A family structure, a remuneration policy or a legal structure are choices made for the long term, not solely on the basis of a campaign pledge.

The debate on fair taxation ultimately shows that the Swiss tax system remains a shifting balance between the Confederation, the cantons, the municipalities and societal choices. For SMEs in Vaud, the challenge is not to comment on every slogan, but to remain able to adapt their planning when the rules change. In an environment where taxation directly affects entrepreneurs’ cash flow and households’ disposable income, it is better to plan ahead than to react too late.