Rejection of Corporate Tax Reforms by Swiss Voters

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The Swiss government was sent back to the start as Swiss voters rejected the plans to overhaul the corporate tax system. This step was taken by the Swiss voters because the reform tried to eradicate the ultra-low tax rates for thousands of multinational companies.

The Federal bill on Corporate Tax Reform III (CTR III) was rejected in popular vote on 12th February. The Federal Council is set to prepare a revised bill that implies that reform shall not take effect in 2019 as per plan but will be delayed by 1-3 years. The delay shall depend on the further legislative procedure. Until a new law is passed, current tax legislation remains in force.

Supposedly, CTR III was to align the Swiss corporate tax system with international standards. This was to be done by replacing the existing tax regimens with a new set of measures that are accepted internationally effective January 1, 2019. Disagreements on the handling of anticipated tax losses and scope of new measures resulted in rejection. According to the opponents, the Swiss tax paying population will have to bear the tax revenue shortfall. Partial taxation of dividend income for individuals and notional interest deduction were main drivers of the rejection of CTR III.

There is no argument on the need of tax reform itself and Switzerland is dedicated to reforms the tax system so that it can maintain its repute as a profitable business location for international companies. Even the Swiss agree on the need of Swiss tax system especially in connection with the difference in taxation between the Swiss and foreign companies and reduction of effective rates of corporate of income tax.

The rejection of CTR III by the Swiss voters of 59.1% shall cause a delay in the implementation. The preparation and adoption of revised federal bill is going to take some time as well.  The reform has to be redrafted. Switzerland was expected to diminish its preferential tax regimes by 31st December, 2018 so there is a possibility that this delay shall have its effects on the OECD, European Union number of bilateral relationships.

According to the Federal Council the revised bill on tax reform shall be prepared as quickly as possible in close discussions and consultations with communes, business community, cantons and political parties. Though how long it is going to take has not been confirmed yet but the delay is expected to be of one to three years as the reform is quite complex.  Additionally, two years are required by the cantons for implementation at cantonal level.  It is thought that further legislative procedure that includes that Swiss tax reform shall be discussed in a dialogue with the Organization for Economic Co-operation and Development and European Union.

Despite of the rejection of CTR III and delay in the new tax reform, Switzerland still remains a profitable and attractive business location. Switzerland boasts of highly skilled workforce, attractive tax environment and incredible infrastructure. Potential impact of future changes and alternative strategies should be analyzed by companies that are in business with Switzerland.