Swiss rejected corporate tax reform
Voters rejected plans to overhaul Switzerland’s corporate tax system. Corporate tax reform III was rejected by popular referendum on Sunday, with 59.1% of the population voting against the Swiss government proposal. The “yes” won only in four cantons: Nidwalden, Ticino, Vaud, and Zug.
The aim of the reform was to make the Swiss tax system more acceptable internationally. The government had hoped to secure approval for changes that would keep corporate tax rates globally competitive while abolishing special treatment for many multinational companies.
“It will not be possible to find a solution overnight,” Ueli Maurer, the Swiss finance minister, said at a news conference in Bern, adding that it could take a year to come up with a new plan and years more to enact it.
Switzerland’s current tax system allows holding companies and multinationals that made most of their revenue abroad to pay little income tax at the cantonal and municipal levels. This system creates strong incentives for foreign companies to relocate their head offices to Switzerland but, at the same, led to a growing number of discontented countries, mostly from the European Union. Multinationals generated around 12% of economic output and 9% of employment in 2015, according to consultancy BAK Basel.
"The rejection of this reform leads to legal uncertainty which could have negative consequences on the investment activities of enterprises," said Swissmem, an association of mechanical and electrical engineering companies, in a statement after Sunday's vote. "The risk is that this weakens the Swiss industrial environment and will lead to job losses, especially in a challenging economic period."
“We’ve succeeded in showing citizens what negative effects this reform would’ve had, we calculated that it would have generated an additional tax burden of 1,000 francs per households and cuts to public services, such as schools,” said Vania Alleva, president of trade union Unia. The result was a “clear sign” to lawmakers that such proposals needed a “social balance,” she said.
Bern and the Swiss cantons must now rethink the proposals in the face of threats that important trading partners could take retaliatory action.
Switzerland faces pressure from the European Union and other international institutions to get rid of the special deals that cantons strike with multinational companies that reduced their tax burden.
The Alpine average corporate tax, of around 21%, is lower than in other developed economies including the U.S., Germany and Japan, according to data from the Organization for Economic Cooperation and Development.
In 2014, Switzerland agreed with the O.E.C.D. to abolish by 2019 the special tax status, which has been an attractive perk for around 24,000 multinationals looking to decrease their tax bills. That provision is now expected to remain in place past the original deadline.