Swiss voters reject tax reform plan

Swiss voters decisively rejected the proposed federal bill on Corporate Tax Reform III (CTR III), which was adopted by the Federal Parliament last June, by a majority 59.1% vote in a referendum.

CTR III was designed to align the Swiss corporate tax system with international standards, particularly the OECD’s base erosion and profit sharing (BEPS) project, by replacing existing tax regimes with a new set of internationally accepted measures as of 1 January 2019.

International bodies such as the European Union and OECD have been pressuring Switzerland to change its corporate tax rates. Switzerland reached agreement with the EU in 2014 to abolish the “special status” afforded to 24,000 multinationals operating in the country.

The reform would have repealed cantonal tax status for holding, domicile, and mixed companies, as well as a principal company taxation and the finance branch regime. These preferential tax rates were to be replaced by a lower universal tax rate applicable to all companies along with the introduction of a patent box regime, research and development super deduction, a notional interest deduction on surplus equity, and a tax basis step-up. Overall cantonal tax relief would have been restricted to a maximum of 80%.

Finance Minister Ueli Maurer said the defeat meant that Switzerland would no longer be able to fulfil its promises to abolish special privileges by 2019. However it remained committed to reform its tax system in order to retain its high attractiveness as business location for international companies.

European Commissioner for Economic and Financial Affairs Pierre Moscovici said: “The rejection of the reform and referendum means we need to redouble our efforts when it comes to taxation. The Commission plans to consult the member states so we can decide together how to proceed.”

“Switzerland’s partners will expect it to implement its international commitments within a reasonable time period and this need not happen within the context of a wider reform, which could take longer than the two years originally foreseen for these changes,” said OECD tax director Pascal Saint-Amans.

The Federal Council is to prepare a revised bill as quickly as possible. The current tax legislation remains in force and the existing tax regimes remain available until a new law is passed.