Swiss vote against tax reform

14 February 2017 by Stephanie Wix

In a referendum on Sunday, around 59% of Swiss voters chose against the plans for corporate tax reform.

The reforms would have cost around €1bn in total and kept corporate tax rates low but abolished special treatment for multinational companies.

Currently Switzerland grants special status to foreign firms which allowed cantons, or districts, to offer them lower rates of tax than domestic firms, making Switzerland an attractive destination for foreign investors.

As part of the reforms, the government would offer new tax breaks for research and development and other activities. Additionally, Switzerland’s cantons (regions) planned to lower their tax rates across the board.

Richard Murphy, professor of practice in international political economy at City University London wrote on his blog: “The proposed bill will allow patent boxes, reduced dividend taxation, 150% deduction of R&D expenditures and a new system of notional interest deduction among others. The result: an unknown amount of tax income reduction.  But the accumulation of all these measures will make Switzerland again a paradise for profit shifting international companies.”

The Swiss government had hoped to secure the approval to keep the country’s practices in line with international standards to keep tax rates globally competitive. The reforms were backed by two chambers of the Swiss parliament, the government, and opposed mostly by left wing parties. The government now has to draw up new plans to abolish the low tax rates for thousands of multinational holding companies.

The defeat is a blow for business, which fears damaging uncertainty, and companies could quit Switzerland or no longer move business there. The Swiss Social Democratic party argued that the new system would have been too generous to business and led to large gaps in regions’ budgets, which would have hit public services.

Switzerland's finance minister, Ueli Maurer, has expected that it will take “at least a year” to draw up an “urgently needed” revised reform package, with legislative approval to follow. Yet, opponents argued that the reforms could be modified “relatively easily” according to media reports.

“Switzerland’s partners expect that it will implement its commitments in a reasonable timeframe,” Pascal Saint-Amans, head of tax at OECD, said. Switzerland has made a commitment to reform by 2019 and international organisations such as the OECD deemed the system unacceptable.

Reform supporters stated that jobs and investment would be boosted by securing the country’s competitiveness.

Jan Schüpbach, economist at Credit Suisse, said: “Switzerland has promised to abolish the special status [of many multinationals]. What actually happens will depend on whether there is international pressure on companies.”

Murphy wrote: “I call this a win for tax justice. Now Switzerland has to come up with new tax laws that suit its people as well as the interests of big business. If only other countries had to do the same thing we might all be in a better place.”