Tax reforms will keep Switzerland a top corporate location

The left is fighting a widely supported tax reform that will ensure international acceptance of Switzerland’s tax system, and it has no alternative proposal. That's an irresponsible stance that endangers Switzerland’s success, argues Frank Marty, a member of the executive board and head of finance and taxes at economiesuisse (Swiss Business Federation).

Switzerland is wrangling over corporate tax reforms. In the hectic battle for votes, the broader picture has sadly been forgotten. When the Swiss cast their ballots on reforms on February 12, there is one element that is totally different from other referendums.

Frank Marty is an executive board member and head of finance and taxes at the Swiss business umbrella organisation economiesuisse xing.com

Usually with such referendums, the voter can choose between a new idea and the status quo. Not this time. Switzerland’s tax system faces criticism, and the cantons will be forced to abolish a tax regime that is no longer acceptable internationally, regardless of the vote outcome.

Back in 1997, EU states committed themselves to a code of conduct for eliminating anti-competitive practices in the area of corporate taxes. The tax practices of the cantons also came under pressure. Special rules for companies that are active internationally were deemed “state subsidies”; blacklists and the threat to cancel double taxation agreements followed. Switzerland sought a more constructive route.

In 2014, Switzerland and the 28 EU member states signed a joint agreement. It said that Switzerland would abide by international OECD standards and the EU would abstain from any countermeasures.

In essence, this means that in future all companies in Switzerland should be taxed at the same rate. Today, all the cantons grant tax privileges to internationally active companies. Their foreign profits are taxed at a lower rate. Because the status quo is simply no longer an option, the federal government, parliament and cantons have drafted a widely supported compromise. With this, tax revenue of more than CHF5 billion and more than 150,000 jobs can be secured.

Switzerland now has two alternatives: We can confront tax realities, or we can bury our heads in the sand. In the first scenario, Switzerland has a good chance of reaping rewards. In the second, it will certainly lose out. The Social Democrats have seized on the referendum but so far they have not presented a Plan B.

So there are just two possible paths for Switzerland to take:

– If the outcome is “yes”, the cantons will have to abolish controversial tax systems. They will receive a toolbox of internationally acceptable instruments to restructure their tax systems from the federal government. All measures are voluntary and the cantons can decide autonomously. At the same time, the government will pay the cantons CHF1.1 billion a year to support them in the restructuring.

– If the outcome is “no”, the cantons will have to abolish their tax systems anyway. Because the new government instruments will not be available, the adjustment will be considerably more expensive. The only option for the cantons will be to lower taxes on earnings. That will lead to large shortfalls. At the same time, the government’s financial support will be withheld and the cantons, local authorities and cities will be left high and dry.

In other words, the corporate tax reform is a package of support measures from the federal government to the cantons. How exactly they restructure their tax systems is for the cantons to decide individually and democratically. What is clear is that big international companies will tend to pay more and small and medium-sized companies will be strengthened.

There is a great deal at stake for Switzerland. Thanks to healthy public budgets, our country can offer high performance and good infrastructure while simultaneously standing its ground in international tax competition. With the tax reform, Switzerland will in future remain among the best corporate locations in the world and maintain its tax base.

For these reasons, the tax reform is supported by an enormously broad alliance of the federal government, almost all parties, all cantons, the association of municipalities and the entire business community. Only left-wing groups are opposed to it. The opponents have not presented an alternative.

Whoever wants to guarantee international acceptance of the Swiss tax system, tax revenue and jobs will vote “yes” to the tax reform on February 12.

Translated from German by Catherine Hickley