Federal Law of October 3, 2003, on Financial Equalization and Burden Compensation (PFCC) - Purpose (FILAG)

This law regulates: a. the equalization of resources in favor of cantons with low resource potential, financed by cantons with high resource potential and by the Confederation; b. the compensation, by the Confederation, of excessive burdens due to geo-topographical or socio-demographic factors; c. the intercantonal collaboration accompanied by compensation for burdens.

The financial equalization aims to: a. strengthen the financial autonomy of the cantons; b. reduce disparities between cantons with respect to financial capacity and tax burden; c. maintain the fiscal competitiveness of the cantons at both national and international levels; d. ensure the cantons receive a minimum endowment of financial resources; e. compensate for excessive cantonal charges due to geo-topographic or socio-demographic factors; f. ensure fair cost compensation among the cantons.

The resource potential of a canton corresponds to the value of its fiscally exploitable resources. It is calculated based on: a. the taxable income of natural persons in accordance with the Federal Law of December 14, 1990, on Direct Federal Taxation; b. the wealth of natural persons; c. the taxable profits of legal entities in accordance with the Federal Law of December 14, 1990, on Direct Federal Taxation.

The Federal Council sets a uniform deductible allowance from income. With regard to the wealth of natural persons, it takes into account that its fiscal exploitation differs from that of income. Concerning the profits of legal entities, it considers the fact that their fiscal exploitability differs from that of the income and wealth of natural persons; for this purpose, it notably distinguishes the profits referred to in Art. 24b of the Federal Law of December 14, 1990, on the Harmonization of Direct Taxes of Cantons and Municipalities (LHID) from other profits.

In collaboration with the cantons, the Federal Council annually calculates the resource potential of each canton per capita, based on figures from the last three years for which data is available.

Cantons with a resource potential per capita above the Swiss average are considered high resource potential cantons. Cantons with a resource potential per capita below the Swiss average are considered low resource potential cantons.

The Federal Council determines annually the payments due to cantons with a low resource potential based on their per capita resource potential.

The payments are calculated as follows

a. Cantons whose per capita resource potential is less than 70% of the Swiss average receive resource equalization payments so that their per capita resource potential reaches, after equalization, 86.5% of the Swiss average;

b. For cantons whose per capita resource potential is between 70 and 100% of the Swiss average, the resource equalization payments are progressively reduced, depending on the decreasing difference between the resource potential and the Swiss average; when a canton with a resource potential of 70% achieves an additional unit of standardized tax revenue, the payments decrease by 90% of this unit;

c. The ranking of cantons resulting from the per capita resource potential must not be altered by the resource equalization.

The funds are allocated to the cantons without being subject to predetermined usage.

Cantons with high resource potential and the Confederation finance the resource equalization.

The total annual share of cantons with high resource potential is equivalent to two-thirds of the Confederation's share.

Each canton with high resource potential contributes, per inhabitant, a uniform percentage of the difference between its per capita resource potential and the Swiss average.

The Confederation compensates for the excessive costs incurred by the cantons due to geo-topographical factors. The factors causing excessive costs include, in particular: a. a higher-than-average proportion of residential areas and productive surfaces located at high altitudes; b. a scattered habitat and low population density.

The Confederation compensates for the excessive burdens of the cantons due to socio-demographic factors.

The factors leading to excessive burdens are, in particular, a higher than average proportion of the following population groups

a. persons living in poverty;

b. very elderly persons;

c to e. ...

f. foreigners who require integration assistance.

The particular additional burdens borne by the central cities of large agglomerations are also taken into account.

The contribution intended for compensating excessive costs due to geo-topographical factors in 2020 corresponds to the 2019 contribution of 361,806,484 francs adjusted for inflation with respect to the corresponding month of the previous year in April 2019. The Federal Council adjusts the contribution based on inflation for subsequent years.

The contribution intended for compensating excessive costs due to socio-demographic factors in 2020 corresponds to the 2019 contribution of 361,806,484 francs adjusted for inflation with respect to the corresponding month of the previous year in April 2019. The Federal Council adjusts the contribution based on inflation for subsequent years.

The contributions intended for compensating excessive costs due to socio-demographic factors increase by 80 million francs in 2021 and sustainably by 140 million from 2022 onwards. This increase is not adjusted for inflation.

The criteria for allocation are set after consultation with the cantons.

The funds are disbursed to the cantons without being subject to a specific allocation requirement.

The Federal Council shall retroactively correct erroneous payments in the area of resource equalization or burden compensation if the error: a. results from incorrect data entry, transmission, or processing, and b. has significant financial consequences for at least one canton.

The Federal Council shall correct the errors no later than when the figures from the year of calculation affected by the error are used for the last time in the calculation of compensatory payments.

Each year, it defines the financial significance in accordance with para. 1, let. b. For this purpose, it bases itself on the average resource potential per inhabitant of Switzerland.

If the necessary conditions for a correction are met, the compensatory payments are adjusted as soon as possible. If necessary, the adjustment may be spread over several years.

The Federal Assembly may oblige the cantons to cooperate by providing for cost compensation in the areas mentioned in Art. 48 a, para. 1, of the Constitution.

The obligation takes the form of a declaration of general mandatory effect (Art. 14) or a requirement to join (Art. 15).

The cantons regulate the cooperation through intercantonal agreements.

Inter-cantonal collaboration with associated cost compensation aims to achieve the following objectives: a. ensure a minimum provision of services to the community; b. carry out cantonal tasks collectively and efficiently; c. fairly compensate for the costs of services benefiting several cantons by ensuring the concerned cantons an adequate participation in decision-making and implementation.

The equalization of services that benefit multiple cantons shall particularly consider the actual use of these services, the extent of the right to participate in decisions and implementation, as well as the significant advantages or disadvantages associated therewith, from which the supplying canton benefits due to its situation.

The cantons shall develop an intercantonal framework agreement concerning intercantonal cooperation accompanied by cost compensation. They shall specifically establish: a. the principles of intercantonal cooperation; b. the principles of cost compensation; c. the competent bodies; d. the participation of cantonal parliaments in intercantonal cooperation accompanied by cost compensation; e. the procedures for accession and denunciation; f. the intercantonal dispute resolution procedure applicable to all disputes related to intercantonal cooperation accompanied by cost compensation; g. the extent to which the principles of intercantonal cooperation and cost compensation between the canton and its municipalities apply.

The Federal Assembly may, by a federal decree subject to referendum, confer general mandatory force: a. on an inter-cantonal framework agreement if at least 21 cantons request it; b. on an inter-cantonal agreement in one of the areas cited in Art. 48a, para. 1, of the Constitution, if at least 18 cantons request it.

The concerned cantons are consulted prior to the decision.

Cantons that are compelled to adhere to an agreement by virtue of a declaration of general mandatory force have the same rights and obligations as the cantons that have already adhered.

The declaration of general mandatory force cannot extend for a duration exceeding 25 years.

The federal decrees regarding the declaration of general mandatory force may provide that the Federal Assembly is authorized to lift the general mandatory force by a simple federal decree, when, due to circumstances, it is no longer justified, especially if: a. at least six cantons request it for the inter-cantonal framework agreement; b. at least nine cantons request it for an inter-cantonal agreement.

The cantons cannot request the lifting of the declaration of mandatory force before five years.

At the request of at least half of the cantons that are parties to an inter-cantonal agreement or whose negotiations have resulted in a final draft agreement, the Federal Assembly may, by a simple federal decree, compel one or more cantons to adhere.

The cantons concerned are consulted before the decision is made.

Cantons that are compelled to adhere to an agreement have the same rights and obligations as the other cantons.

The obligation to adhere cannot exceed a duration of 25 years.

The Federal Assembly may, by a simple federal decree, lift the obligation to adhere when, due to the circumstances, it is no longer justified, particularly if half of the cantons party to the inter-cantonal agreement request it.

Cantons cannot request the lifting of the obligation to adhere before five years have elapsed.

The cantons shall establish judicial authorities that act as the cantonal or intercantonal authorities of last resort for appeals against the decisions of intercantonal bodies.

If a canton violates an intercantonal agreement or a binding decision made by an intercantonal body, any canton or the concerned intercantonal body may bring the matter before the Federal Court when the intercantonal agreement on dispute resolution has not led to an agreement.

If a canton does not implement an intercantonal agreement or a binding decision made by an intercantonal body, or if it fails to do so within the prescribed time limits, the affected citizens may assert rights based on this agreement or decision, provided that the substantive provisions it contains are sufficiently clear and precise.

The Federal Council shall submit a report to the Federal Assembly every four years on the implementation and effects of the present law.

The report shall outline the extent to which the objectives of financial equalization have been achieved during the elapsed period and propose possible measures for the subsequent period.

The effects of inter-cantonal cooperation accompanied by cost compensation shall be presented separately.

The Confederation and the cantons finance a hardship compensation fund for cantons with low resource potential to facilitate their transition to the new financial equalization system. Cost compensation within the framework of inter-cantonal collaboration is not considered in this context.

The fund is financed two-thirds by the Confederation and one-third by the cantons.

The Federal Assembly determines, by federal decree subject to referendum, the amount of the hardship compensation fund. This amount is set for eight years and then decreases by 5% annually. Each canton’s contribution is determined based on its population.

The Federal Assembly decides, by federal decree subject to referendum, the total or partial lifting of hardship compensation when it appears, based on the report of the Federal Council, that it is no longer, or no longer fully, necessary.

The Federal Council regulates the distribution of funds among the cantons, based on their resource potential and the results of the financial assessment of the transition to the new equalization system. It consults the cantons beforehand. Cost compensation within the framework of inter-cantonal collaboration is not considered in this context.

A canton loses its entitlement to benefits from the hardship compensation fund when its resource potential exceeds the Swiss average.

The funds are paid to the cantons without being subject to any specific allocation.

...

Notwithstanding art. 3a, para. 2, let. a, the resource potential per capita of cantons reaching less than 70% of the Swiss average before equalization will be, in 2020, 87.7% of the Swiss average after equalization.

In 2021, it will be 87.1% of the Swiss average.

Notwithstanding Art. 18, para. 1, the Federal Council shall submit a report to the Federal Assembly in 2024 on the evaluation of effectiveness for the period from 2020 to 2025.

The Confederation provides funds to cantons with low resource potential to mitigate the fluctuations in compensatory payments due to the transition to the new financial equalization system during the years 2021 to 2025.

The funds mentioned in para. 1 amount to: a. 80 million francs for the year 2021; b. 200 million francs for the year 2022; c. 160 million francs for the year 2023; d. 120 million francs for the year 2024; e. 80 million francs for the year 2025.

The funds mentioned in para. 1 are distributed among the cantons with low resource potential based on their number of inhabitants. A canton loses its right to payments when its resource potential exceeds the Swiss average. It does not regain its right if its potential becomes low again. The funds are then redistributed among the other cantons with low resource potential.

The Federal Council shall enact the implementing provisions. It shall consult the cantons beforehand.

The Federal Act of June 19, 1959, on Financial Equalization among Cantons is repealed.

For the first five years following the entry into force of the amendment of 28 September 2018, the Federal Council shall continue to take into account the special tax status of legal entities referred to in Art. 28, paras. 2 to 4, of the former Tax Harmonization Act (LHID). During this period, the determining profits, as defined in Art. 3, para. 3, of the present Act, are calculated according to the version valid until the entry into force of this amendment. The beta factors from the reference year 2020 are used. The profits weighted by the beta factors are included in the calculation of the resource potential for the corresponding reference years; from the second year following the entry into force, the volume of these profits is reduced by one-fifth each year.

This method of calculation is also applied if the legal entity has voluntarily renounced its special tax status after 31 December 2016.

From the fifth to the eleventh reference year following the entry into force of the said amendment, the Federal Council may introduce thresholds and caps for the factors by which the profits of legal entities are considered in the calculation of the resource potential as defined in Art. 3, para. 3.

During the years mentioned in para. 3, the minimum allocation provided for by Art. 3a, para. 2, letter a, is governed by the resources considered in the fourth year following the entry into force of the amendment. The Confederation shall pay the concerned cantons additional contributions amounting to 180 million francs per year. These contributions are not taken into account for the calculation of the minimum allocation.

This Act shall be subject to a referendum.

It shall be published in the Federal Gazette if the people and the Cantons accept the Federal Decree of October 3, 2003 on the reform of financial equalisation and the division of tasks between the Confederation and the Cantons.

The Federal Council shall determine the date of entry into force, taking into account the state of intercantonal cooperation coupled with cost-shifting.

Date of entry into force: January 1, 2008

Art. 20: April 1, 2005