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Switzerland’s effort to dismantle the country’s controversial corporate tax regime faces an uncertain future after voters rejected a government-backed reform package.
Swiss voters Feb. 12 successfully overturned their government’s corporate tax reform law due to concerns that its various offsetting measures would result in lost tax revenue for national public services.
Switzerland’s current tax rules will remain in place for the time being, but Swiss officials said they soon will reintroduce legislation to ensure its tax regime adheres to international norms.
Switzerland’s finance minister, Ueli Maurer, said the referendum vote could create “legal uncertainty” for roughly 24,000 Swiss-based multinational companies like Nestle SA, Novartis AG, ABB Group Holdings Pty Ltd., and Japan Tobacco Inc.
Multinational firms are now looking for the Swiss government to provide “rapid legal certainty in order to continue investing in the future,” said SwissHoldings, a Bern-based advocacy group for multinational companies.
Until then, Swiss-based multinationals are considering whether to:
“Officially no companies have said they are leaving but surely there are companies looking into it,” said Stefan Kuhn, the head of corporate tax at KPMG in Zurich.
“They may be taking the ‘Plan B’ out of their drawer and taking the first steps to moving out of Switzerland, or at least out of their canton,” Kuhn told Bloomberg BNA during a Feb. 13 interview.
In the coming days, a working group will begin to analyze the next steps to ensure Switzerland remains “tax-attractive for companies,” he said.
The Swiss Social Democratic Party, which spearheaded the referendum vote, said it will table a more “balanced” tax reform initiative Feb. 27—the first day of the Swiss parliament’s spring legislative session.
Specifically, the Social Democrats said they want to remove the law’s interest-adjusted corporate income tax on above-average equity, also known as a notional interest deduction.
The Paris-based Organization for Economic Cooperation and Development won’t “blacklist” Switzerland but may account for the referendum vote in its next implementation report on its action plan to combat base erosion and profit shifting.
“Clearly, if Switzerland does not move relatively soon, the report will say ‘you are not implementing your commitments,’” said Pascal Saint-Amans, director of OECD’s Centre for Tax Policy and Administration. “Is it a blacklist? No. Is it naming and shaming? Yes.”
Switzerland should “go very fast in dismantling the regimes that are being disputed,” Saint-Amans told Bloomberg BNA in a Feb. 13 interview. “If it takes five to six years, that would be very hard to sell to your partners.”
While stressing that the vote “is not fatal” to Switzerland’s ability to meet its international commitments,” he said via e-mail that the nation’s partners “will expect it to implement its international commitments within a reasonable time period and this need not happen within the context of a wider reform, which could take longer than the two years originally foreseen for these changes.”
PricewaterhouseCoopers said the Swiss government’s forthcoming effort to revise its corporate tax reform law could extend its 2019 implementation date by at least two or three years.
Europe’s top tax commissioner said the EU was “disappointed” with the Swiss referendum and said EU member states would begin consultations about possibly listing Switzerland as a non-cooperative tax jurisdiction.
“The commission plans to consult the member states so we can decide together how we should proceed and decide what we should do if these commitments aren’t respected anymore,” Moscovici said during a Feb. 13 news conference in Brussels.
EU member states are expected to evaluate the impact of the Swiss referendum during a Feb. 24 meeting of the European Council‘s business taxation code of conduct group, according to a commission spokesman.
Meanwhile, member states like France and Italy could independently decide to impose national defensive measures, such as deduction limits, for European companies that do business with Switzerland.
With assistance from Catherine Bosley in Zurich and Mark Deen in Paris.
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