Switzerland Votes ‘Yes’ to Being Tax Home for Big Business

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Switzerland Votes ‘Yes’ to Being Tax Home for Big Business

 

 

Switzerland approved an overhaul of the corporate tax code, choosing to stay an attractive base for companies like Procter & Gamble, Vitol SA and Caterpillar Inc. even at the expense of a short-term drop in fiscal revenue.

The outcome, approved by 66.4% of voters, ends years of wrangling and a failed attempt at an overhaul two years ago, ensures Switzerland remains a low tax domicile for companies and still is compliant with international rules.

“This very clear yes is good news for our country,” said Interior Minister Alain Berset. “It’s a project that allows us to remain competitive internationally.”

The new system will consist of deductions on profit from patents and R&D expenses, to make up for having to get rid of the breaks now accorded multinationals. That’s because they no longer are in line with Organization for Economic Cooperation and Development rules.

A failure to pass the reform could have sparked an exodus of firms to low-tax locales like Ireland or Singapore because in Switzerland they would’ve been taxed at the same rate as local companies -- which in Geneva is currently as high as 24.16%.

That could have been devastating for the economy. Multinationals generate about a quarter of employment and a third of gross domestic product, according to a study by McKinsey and industry group SwissHoldings. They’re also responsible for a big chunk of the federal government’s revenue from taxing firms’ profits.

Cantons are also taking action on taxation. 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. In Geneva, one of the world’s top centers for oil trading, the electorate approved a headline rate reduction to 13.99% in a local ballot.

“We’ll have a tax system that’s compatible with the OECD and the EU,” Finance Minister Ueli Maurer said. The law is likely to enter into force on Jan. 1.

Yet even with these moves, the rates multinationals pay -- which get negotiated on an individual basis and aren’t publicly disclosed -- may rise. A SwissHoldings survey of its members found 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.

Still, they’d be charged even more in neighboring France or Germany.

Although officials have argued the reform is essential for Switzerland not to lose out in the global competition for businesses, in the short-term it will still cause a drop in tax income of about 2 billion francs ($2 billion) a year.