In a setback for government efforts to abolish low tax rates for thousands of multinational firms while encouraging them to stay, the Swiss voted overwhelmingly against an overhaul the country's corporate tax system. Swiss broadcaster SRF said voters rejected the tax plans by about 60% to 40%. As Reuters notes, Switzerland has been in the European Union's firing line for years because Swiss cantons have a special tax status for foreign companies that means some pay virtually no tax other than an effective federal tax of 7.8%, an incentive to incorporate and stay on Swiss soil.
In 2014, the country agreed with Brussels to abolish this status because it allowed some foreign firms to pay far lower tax on overseas earnings - an attractive perk for around 24,000 multinationals looking to lower their tax bills, Reuters reports. To offset the introduction of higher tax rates the government proposed giving companies tax breaks on research and development in Switzerland, profits from patents developed there and deductions for excess company equity. In addition, many cantons said they would also reduce corporate tax rates for all companies to reduce the fiscal burden and dissuade multinationals from leaving.
Those backing the government say the reforms struck a balance between abolishing the tax breaks criticized by Brussels and new measures that will keep Switzerland competitive. Most Swiss citizens, however, , disagreed.
After parliament approved the measures last year, critics gathered the 50,000 signatures needed to trigger Sunday's referendum, which can overturn the parliamentary vote. The No campaign was led by a coalition including the Social Democrats, Greens, trade unions and church leaders who feared the public would bear the brunt of reduced company tax revenue through cuts in public services or higher personal taxes.
While most Swiss recognize the country needs tax reform to avoid being blacklisted as a low-tax pariah, the new measures proposed to help companies offset the loss of their special status breaks had created deep divisions.
"It is so clear that you can already say the measure will fail," political analyst Claude Longchamp of the gfs.bern research and polling institute told SRF around half an hour after polls closed.
As Reuters adds, "the stakes are high for Switzerland, already coming to terms with the end its long-cherished tradition of banking secrecy. If multinationals pull out, the economy could suffer."
Furthermore, the changes also come at a time U.S. President Donald Trump is considering slashing corporate taxes - even if the plan is still missing much if any clarity - and Britain has hinted it could cut its rates when it leaves the EU. As such, a corporate tax hike could come at a time of global tax upheaval, which would make it even more attractive for domestic companies to "invert" themselves out of Switzerland and to more welcoming venues.