Switzerland votes ‘yes’ to overhaul corporate tax rules

Double whammy: while corporate tax is to be reformed, the pension system will get a boost. © Keystone / Gabriel Monnet

Swiss voters have largely accepted a reform of corporate tax rules that will scrap preferential treatment for multinational firms. Sunday’s result also means a financial boost for the country’s ailing pension system.

Two years after voters rejected a similar idea to reform corporate tax, the issue – this time linked controversially to pensions – received a clear thumbs-up.

Final figures Sunday showed 64.4% of Swiss voters approved the government-backed plan, with none of the 26 regions voting against. Canton Vaud, with 80%, was keenest.

The legislation will bring Switzerland into line with international tax rules by ditching preferential rates offered to multinationals, while lowering baseline rates in an effort to prevent them fleeing to more attractive destinations. 

And to dispel left-wing fears that these lower overall rates will mean more strain on public services and citizens, the government has promised to pump an annual CHF2 billion ($1.98 billion) into the state pension scheme as compensation.

International pressure

Acceptance comes as a relief to authorities, who have been under pressure to fall into line with Organisation for Economic Co-operation and Development (OECD) and European Union (EU) rulesExternal link on fair tax practices.

Speaking at a press conference on Sunday afternoon, finance minister and current Swiss president Ueli Maurer welcomed the “robust” result that he hoped would cement Swiss competitiveness as well as bring the country back into the EU’s good books.

Indeed, throughout the lead up to the vote, the government had warned that rejecting the package would compromise Switzerland’s attractiveness for business and could spark an exodus of firms to low-tax competitors like Ireland, Singapore, or the Netherlands.

Supporters say the new system will thus provide stability and certainty for the 24,000 foreign companies based in Switzerland, which generate a quarter of Switzerland’s jobs and a third of its economic output.

Under the new regime, such firms will lose the “special status” allowing them pay less tax than normal Swiss companies, but will still be able to cut costs by claiming deductions on income from patents or spending on research and development.

And though the new rules are expected to produce an initial annual shortfall of some CHF2 billion in lost tax revenues, in the long-term, supporters say, failure to reform would have worked out even more costly.

Divisions remain

While the country’s main business federation welcomed the outcome, opponents of the plan – some left-wing groups and NGOs who saw it as too generous to companies – said the result on Sunday was bad news for public services, which will suffer from lower tax receipts.

Céline Vara, vice-president of the Swiss Green Party, which opposed the plan, told public radio that the CHF2 billion drop in tax revenue would come at the expense of ordinary taxpayers. “Public services, creches, or public transport will have to be cut [to fund the loss],” she said.

Other critics, both before and following the vote, slammed the ‘artificial’ linkage of corporate tax and pensions in a single package as being undemocratic. Maurer rejected this on Sunday, saying that citizens recognised the “balance” between both issues.

The Social Democrats, meanwhile, who supported this version of the reform (after opposing in 2017) announced on Sunday that it plans to launch an initiative to introduce a minimum threshold for tax rates across all Swiss cantons; as things stand, the ability of regions to set their own rates leads to unhealthy competition, it reckons.

Cantonal versions

Alongside the national ballot, the cantons of Geneva and Solothurn also voted on Sunday on corresponding laws to implement tax reforms at the regional level.

In Geneva, where there is a high concentration of multinational companies, voters accepted a plan to set the baseline corporate rate for all companies at 13.99%. Previously, it had been 11.6% for “special status” firms, and 24.2% for others.

The fall in tax revenue for the canton that this implies is estimated at some CHF186 million in 2020; authorities, in a mirror image of the national rhetoric, said that job security and long-term attractiveness as a business destination would compensate for the financial loss.

Voters in Solothurn, which was the region that gave the weakest “yes” to the national plan, narrowly rejected the cantonal implementation plan put to them; authorities there will have to come up with an alternative.

Results Vote May 19, 2019

Gun law in line with EU:  63.7% yes          36.3% no

Corporate tax reform:     66.4% yes         33.6% no

Turnout: 43.9%