Swiss voters reject corporate tax reform: projection

[ZURICH] Switzerland probably 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 per cent to 40 per cent, 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 are due later on Sunday.

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.

"It cannot be that we always ease the burden for the privileged," said Beat Jans, a member of parliament for the Social Democrats, who had campaigned against the reform on the grounds it would heighten the tax burden for common citizens.

The plebiscite is the latest decision that risks damaging the economy in Switzerland, which is one of 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 ties with the European Union.

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

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.

Yet opponents, notably the Social Democrats, the second-biggest party in parliament, argued the reform would mean more than 2.7 billion francs in lost tax revenue, resulting in higher taxes for households and cuts to public services. According to Daniel Lampart, chief economist of the Swiss Trade Union Federation, the reform would have cost each household 1,000 francs a year.

Because the rates for domestically oriented companies can be as high as 24.2 per cent, 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.

The rates Switzerland currently charges are already higher than in Ireland, Hong Kong or Singapore, according to KPMG. The UK announced a company tax cut and in the US, President Donald Trump has proposed cutting the business levy to 15 per cent from 35 per cent.

Still, according to Karsten Junius, chief economist at Bank J. Safra Sarasin, the 'No' vote doesn't mean big international businesses will simply pick up and leave overnight.

"I'm sure that multinational corporations would wait a bit before they leave the country," Junius told Bloomberg Television in an interview on Feb 10. "After all, it's an extremely attractive destination, it's very innovative, it's very competitive, with a highly skilled workforce. All those are pluses for Switzerland besides the tax issue."

BLOOMBERG