By a margin of 66 to 34 percent, Swiss voters chose this past weekend to pass a large-scale overhaul of the country’s corporate tax system, falling closer in line with the tax requirements of the European Union and OECD.
Via this corporate tax reform, close to 24,000 multinational companies including Procter & Gamble, Vitol SA and Caterpillar Inc., will no longer benefit from special low tax rates.
More specifically, the Swiss government will end these companies’ special tax status, which allowed them to pay between 7.8 and 12 percent in taxes in certain cantons.
Companies not benefiting from this designation normally paid between 12 and 24 percent in taxes.
Swiss Finance Minister Ueli Maurer welcomed this result and said, “We’ll have a tax system that’s compatible with the OECD and the EU.”
According to Bloomberg, the tax reform, which is expected to enter into force on January 1, 2020, will also include “deductions on profit from patents and R&D expenses, to make up for having to get rid of the breaks now accorded multinationals.”
As a result of these changes and in an effort to retain the multinational companies’ business, cantons will drop their taxes for all companies.
For example, explains Bloomberg’s Catherine Bosely, “the cantons of Basel City, home to pharmaceutical giants Novartis and Roche, has lowered its levy on companies, as has the French-speaking canton of Vaud.”
Furthermore, as reported by swissinfo.ch, voters in Geneva “accepted a plan to set the baseline corporate rate for all companies at 13.99%,” whereas prior to the referendum “it had been 11.6% for “special status” firms, and 24.2% for others.”
Additionally, the Swiss government has vowed to boost the amount of federal taxes received by the cantons to make up for the $1.98 billion loss in revenue from these cuts.
George Mills, writing for The Local, an independent European online newspaper, summarizes this combination nicely: “The corporate tax reforms involve a complex balancing of cantonal and federal interests,” via which, “to make up for a corporate tax shortfall estimated at 2 billion francs in the short term, cantons will receive a higher share of direct federal tax revenue (up from 17 percent to 21.2 percent).”
Alain Berset, Switzerland’s Interior Minister, said, “This very clear yes is good news for our country,” adding that the result confirms “a project that allows us to remain competitive internationally.”
Interested Parties React to Swiss Corporate Tax Overhaul
Despite of these cantonal cuts and federal help, many companies believe they will still end up paying more in taxes.
As reported by Bloomberg’s Bosely, “the rates multinationals pay—which get negotiated on an individual basis and aren’t publicly disclosed—may rise.”
A recent survey organized by SwissHoldings shows “that roughly a quarter expect to pay a rate more than 15% higher than today as a result of the changes, while about half foresee a 5% to 15% rise in their tax bill.”
The left-wing political parties also denounced this tax reform, alleging it will hinder public services offered by the Swiss government.
Céline Vara, who’s second in command for the Swiss Green Party, believes this change will ultimately be bad for Switzerland’s general population.
“Public services, creches, or public transport will have to be cut [to fund the loss],” Vara told public radio.
However, other organizations welcomed the tax reform.
For example, writes Bosely, “Swissmem, the association of mechanical and engineering companies, backs the measure and says that encouraging research through tax breaks is good for the country.”
Any particular thoughts on the Swiss corporate tax reform? How will it impact your business? Please let us know below!