On 12th of February 2017, Switzerland held a referendum federal bill on Corporate Tax Reform III proposed by the government in 2016. The aim of the reform was to bring the Swiss corporate tax system in line with internationally accepted standards. However, the majority of Swiss voters (over 59%) opposed the proposal, thus letting the future of the taxation in the Alpine country unclear.
The key aspects of the reform
The proposed tax reform aimed at removing a bundle of tax privileges for multinational companies that encourage them to set up in Switzerland. Multinational entities have been enjoying lower tax rates and a level of bank secrecy in Switzerland for decades. However, this pro-multinational approach received a lot of criticism from the EU and OECD because it enables about 24.000 multinationals to lower their tax bills. In order to comply with the international standards, the Swiss government has proposed a reform plan. Under the plan, multinational companies would be taxed at the same tax rates as regular businesses.
For example, under the current tax system, companies registered in the canton of Geneva are subject to taxation at the rate of 24%, whereas the profits of multinationals are taxed at 12%. Under the proposed reform, the selective tax treatment would be abolished and all companies located in Geneva would pay a tax of 13,49%.
Besides, the reform plan intended to enable the Swiss cantons to individually offer tax brakes and other incentives to businesses (e.g., research and development tax brakes). However, since the tax reform was rejected in a referendum, it will not become active in 2019 as planned. The main reasons for which Swiss citizens voted against the reform of the tax system were expectations of tax revenue losses and disagreement on the scope of the new measures.
The impact on businesses
Despite the results of the referendum, Switzerland will prepare a revised tax bill and attempt again to reform its tax system in the near future. The current lack of clarity regarding taxation of multinational companies may discourage such companies from investing in Switzerland.
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