Switzerland will adopt new corporate tax rules
On the 19th of May 2019, a referendum regarding the acceptance of the Federal Act on Tax Reform and AHV Financing took place in Switzerland.
The proposed act will eliminate the preferential treatment of multinational companies. At present, multinationals can negotiate preferential rates with the Swiss cantons where they are based. After the amendments, all companies in Switzerland will be subject to the same tax rates.
Simultaneously with eliminating the preferential treatment of multinationals, the proposed law will reduce the corporate tax rates in order to keep the multinational companies within the borders of the Swiss confederation. For example, in Geneva, the corporate tax rate (including municipal, cantonal, and federal corporate taxes) after the amended law enters into force will amount to 13,99%, whereas currently, it amounts to 24,2%.
Although foreign companies will lose their preferential status, they will still be able to benefit from deductions on income from patents or costs associated with research and development.
64,4% of the Swiss voters voted in favour of the new legislation. No one of the 26 Swiss regions voted against it. The canton Vaud is the strongest supporter of the legislation (80% of the people there voted in favour).
To address left-wing concerns that the lower corporate tax rates may have a negative impact on the social welfare, the Swiss government will transfer annually CHF 2 billion to the state pension scheme. The promised transfer to the state pension scheme may be the reason for the pro-change vote. Two years ago, the Swiss voters rejected a similar proposal to reform the Swiss corporate tax law. However, the rejected proposal was not linked to pensions.
The Swiss President, Ueli Maurer, welcomed the outcome of the referendum and hoped that it will enhance the competitiveness of the country. Prior to the referendum, the government warned multiple times that, if the proposed law is not accepted, many companies that are currently based in Switzerland may relocate to low-tax jurisdictions, such as Singapore and Ireland.
It is expected that, as a result of the new law, Switzerland will cut its tax revenues with about CHF 2 billion per year. However, according to supporters of the new law, the failure to adopt it will be more costly in the long term.