Swiss reject tax reform, threatening country’s competitive edge

Switzerland shot down the government’s plan to reform corporate taxation, a decision that risks hurting its appeal as a place for multinational companies.

After opponents said the reform was a series of “ complicated tax tricks,” voters opposed it by 60 percent to 40 percent, according to projections on broadcaster SRF. Polls had suggested the electorate was evenly split on the measure, which would have given companies reductions for income from patents and research and development activities. Official results will be published today [Macau time].

Due to international pressure, Switzerland must give up special breaks for multinationals, which generate billions in tax revenue and employ some 150,000 people in the country of 8 million. To stay attractive, the plan included cantons cutting the rates they charge companies across the board. Voters feared this would have strained the public purse and increased the burden on individual taxpayers.

“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.

The plebiscite is the latest decision that risks damaging the economy in Switzerland, which is one the world’s most affluent countries and regularly tops the World Economic Forum’s global competitiveness index. Following an international crackdown on banking secrecy, stringent limits on executive pay were introduced in 2013 and, the following year, a referendum on immigration quotas threatened to undermine ties with the European Union.

Multinationals generated around 12 percent of economic output and 9 percent of employment in 2015, according to consultancy BAK Basel.

Opponents of the reform, notably the Social Democrats, the second-biggest party in parliament, argued the reform would mean more than 2.7 billion francs (USD2.7 billion) in lost tax revenue. While conceding it would pressure budgets, proponents of the reform, notably businesses and the government, had argued it was the least costly option to keep Switzerland internationally competitive.

Because the rates for domestically oriented companies can be as high as 24.2 percent, the ‘No’ vote will force the government to figure out a new set of tax measures to prevent companies from leaving as well as a new government savings program, according to Finance Minister Ueli Maurer. Yet that process could take years, and other countries are considering adjusting their corporate tax regimes to boost their appeal.

“It’s not good news and it means the uncertainty will continue for the multinationals present in Switzerland,” said Charles Lassauce, member of the board of directors of the Geneva Chamber of Commerce, which was in favor of the reform. “Parliament will have to come up with a new project.” Catherine Bosley, Bloomberg