Voters delivered a crushing blow to the Swiss business and political establishment by rejecting a comprehensive overhaul of taxation for companies on Sunday. The decision will leave the authorities scrambling to find an alternative, creating further business uncertainty for foreign multinationals like Caterpillar and Unilever.
Four years in the making, the aim of the corporate tax reform was to level tax rates for domestic and foreign firms while offering deductions for innovation and the nominal interest on surplus equity. But 59.1% of voters agreed with opponents who argued the plan gave away too much to companies at the expense of ordinary Swiss tax payers.
Initiators of the initiative against the reform said the tax overhaul would leave a gaping CHF3 billion ($3 billion) annual hole in federal and cantonal income. Proponents of the new plan, including the cabinet and a majority in parliament, unsuccessfully argued that the shortfall would initially be covered by government handouts to cantons and later by attracting more foreign firms and innovation.
Swiss Finance Minister Ueli Maurer said it was possible that Switzerland would lose its appeal as an internationally competitive business location. "There is now a real danger that Switzerland will disappear from the radar of international companies," he told a press conference.
He added that Switzerland would have to go back on its promise to the Organisation for Economic Cooperation and Development (OECD) to end 'harmful' tax practices by 2019. "This could result in renewed international pressure on Switzerland," he said.
It will take a minimum of two years to draft up new tax proposals and another two for cantons to implement, Maurer said.
Heinz Karrer, President of the Swiss Business Federation (economiesuisse), told Swiss public television (SRF) he was “disappointed” by the outcome, which was a victory for short-term fears over long-term security. He added that foreign companies now face some tough decisions on their Swiss operations.
The leftwing Social Democratic party, who opposed the reform, said voters had “shown the red card to arrogance”. People would no longer accept a system of “bigger and richer equals more privileges”, the party stated.
Solution needed - fast
All sides agreed that changes were necessary to stave off European Union and OECD criticism that the current system is anti-competitive and encourages legal, yet unethical, tax dodging from big business.
The primary complaint is that foreign firms are given preferential tax treatment over their domestic counterparts. This has led to a proliferation of so-called post box firms, which employ few staff to carry out administrative activities largely to save on tax bills.
In the build-up to the referendum, business lobby groups and right-leaning politicians warned voters that multinational firms would turn their backs on Switzerland if they torpedo reforms. Some 300,000 jobs are directly or indirectly dependent on the Swiss operations of foreign firms, the argument stated.
Trade unions and left leaning political parties argued that ordinary citizens will be left to pick up an estimated CHF3 billion ($3 billion) shortfall in corporate tax revenues from the overly business-friendly package of changes.
Opinion polls shifted markedly after statements late in the campaign by former Swiss finance minister Eveline Widmer-Schlumpf. A poll published by the GfS Bern research institute in early January indicated a 15% lead by backers of the reforms. By the end of the month, voter opinion was neck and neck, following Widmer-Schlumpf’s comments.
The Swiss-American Chamber of Commerce released a statement urging all sides to get together to find an alternative solution within the next two years. “In this environment, no company will further invest in Switzerland,” the lobby group said. “How can we credibly reassure international companies that they are welcome in Switzerland? ‘Everything is under control’ suddenly rings hollow.”
Final results vote February 12
Corporate tax reform: 40.9% yes 59.1% no
Facilitated citizenship: 60.4% yes 39.6% no
Road traffic fund: 62% yes 38% no