London faces a significant challenge to its status as the leading base for hedge funds, as Switzerland mulls offering the sector a special 10% tax rate.

The Daily Telegraph reports that Swiss finance minister Hans-Rudolf Merz has met with Swiss banking leaders to build a plan to challenge the dominance of the City of London.

The Swiss banking federation has proposed a 10% tax on elite hedge fund managers, effectively cutting the marginal rate by 35 percentage points.

'It's an idea I'm trying carrying around,' said Merz. 'The financial marketplace is of enormous importance to our country. I know that we have a disadvantage in taxes. We understand the problem, and we have to solve it.'

Further reading:

EU goes toe to toe with Swiss over corporate tax system

FSA throws out 'light' hedge fund regime

Hedge fund managers under Revenue spotlight