Switzerland: Public Says no to Corporate Tax Reform in February Referendum

In a blow to its supporters, the Swiss government’s corporate tax reform (CTR III) has been voted down by the Swiss public. But CTR III’s backers have not given up. Intense discussions among Switzerland’s major political forces and analysis of voter behaviour will precede a second attempt to gain public approval of CTR III. With it will come long-awaited changes to Switzerland’s tax system.

In recent years, Switzerland has faced international criticism for its preferential tax regimes. CTR III is designed to address concerns by abolishing certain tax practices, bringing Swiss tax law in line with international standards. This includes introducing a patent box, an R&D super-deduction and a notional interest calculation.

The challenge for Swiss cantons is to remain competitive as certain tax advantages disappear. Some are already taking measures. In anticipation of the eventual enactment of CTR III, a few cantons have announced a reduction of their income and capital tax rates. This step has attracted certain businesses, but may not be enough to retain important international companies with a willingness to relocate.

Although reform will not take effect in 2019 as planned, CTR III’s failure in the referendum is seen as a stumbling block rather than defeat. It is likely to be enacted within the next three years. In the meantime, the current tax legislation remains in force and existing tax regimes are still available.

Despite the referendum and the resulting delay of tax reform, Switzerland remains an attractive business location with its highly skilled workforce, excellent infrastructure, and attractive tax environment.