Switzerland votes on corporate tax reform proposal
Plan aimed at bringing country into line with internationally accepted standards
Switzerland is voting in a closely watched referendum on plans to abolish special tax rates for multinational companies and bring the country into line with internationally accepted standards
Opinion polls suggest the government in Bern could face defeat on Sunday, with opponents arguing that the proposed replacement tax system would be too generous towards business.
However, the Swiss have been warned that the country could face an international backlash if it is slow to dismantle practices considered harmful by other countries.
“Switzerland’s partners expect that it will implement its commitments in a reasonable timeframe,” Pascal Saint-Amans, head of tax at the Paris-based OECD, told the Financial Times.
While Switzerland would not necessarily be blacklisted if the proposals were rejected, “its partners may take measures to protect their tax base”, said Mr Saint-Amans. “Switzerland is sovereign in its decision-making, but other countries are also sovereign to protect their tax base.”
Since the second world war, Switzerland has boosted its attraction to multinationals by offering selected companies special low tax rates. Under the reform plans, the country’s 26 cantons would still compete to offer companies the most favourable tax rates but multinationals would pay the same rates as other businesses.
Rather than raising rates for multinationals, however, the cantons have announced plans to slash corporate tax rates for other companies.
In the canton of Geneva, for instance, all companies would pay a tax rate of 13.49 per cent. Today multinationals qualifying for special rates in Geneva pay an average of under 12 per cent, whereas other companies in the region pay an average of more than 24 per cent.
Cantons would also have options to offer companies tax breaks, for instance for research and development, from a “toolbox” of internationally-accepted reliefs.
Swiss companies have campaigned for the changes, arguing that they will end uncertainty.
“I’m a strong supporter of the tax reform,” Ulrich Spiesshofer, chief executive of ABB, the engineering company, told the Financial Times. “This is an opportunity to give enterprises long-term investment security . . . The tax reforms support enterprises which drive investment locally.”
The government in Bern will compensate cantons for some of the expected shortfalls in tax revenues. But opponents of the reforms argue they will result in cantons having to cut spending on public services. Critics also argue that the complexity of the reforms will simply boost fee income for tax advisers and lawyers.
In its campaign for a No vote on Sunday, the Swiss Social Democratic party argued that “instead of simply abolishing existing tax loopholes, new ones will be introduced and corporate taxes cut massively”.
The budget shortfalls would mean “we all pay with worse services and higher taxes and charges”, the party said.
Even critics of the reform agree, however, on the need to end the selective tax treatment of some companies. “It is our understanding that the need to dismantle harmful regimes is a largely consensual issue in Switzerland,” said Mr Saint-Amans. “This may, however, be impacted if the law is rejected for other reasons.”
A No vote on Sunday would make “it urgent to abolish the dispute regimes” through other measures. “Whether the law is too generous or not is a matter of internal politics,” he added.