Switzerland to keep corporate tax breaks for multinationals

Swiss voters have rejected a government plan to eliminate corporate tax breaks for multinational companies, with a decisive 59% opposing the creation of a more equitable tax policy.

Since World War II, foreign companies have enjoyed a special status within Switzerland that allows them to pay lower tax rates than their domestic counterparts. Swiss cantons compete against one another, as well as other international market destinations, to attract foreign investors through the use of low corporate tax rates.  

In the past, Swiss corporate tax breaks have been criticised by various international organisations, including the Organisation for Economic Cooperation and Development and the European Union, for creating an unfair competitive advantage over other global market destinations.

But Swiss citizens have backed their system of localised corporate tax breaks for multinational firms. The result is a major defeat for the federal government and domestic business leaders, who proposed the reform as a means of bringing the Swiss tax system in line with international standards.

“The Swiss [are] willing to accept that tax competition might benefit [their] country because it attracts multinational companies, but that they fail to see how that argument would play for domestic companies,” says Bob Hancké, an associate professor at the London School of Economics’ European Institute. 

Most of Switzerland’s 26 cantons offer privileged corporate tax regimes to multinational firms. For example, multinational firms in Geneva pay less than 12% in corporate tax rates compared with their domestic counterparts, who pay as much as 24%.  

The proponents of the reform ballot argue that Switzerland is too generous with multinationals, and this is creating investor uncertainty for domestic companies. Meanwhile, opponents of the reforms argue that multinationals make a valuable contribution to the Swiss economy, in areas such as research and development and job creation.

Serge Dal Busco, Geneva’s finance minister, was quoted in the Financial Times as saying: “Some 62,000 jobs [in Geneva] rely directly or indirectly on multinationals. If they don’t have a favourable tax environment, [Geneva] could lose at least some of those jobs.”   

Since referenda typically determine these economic policies, uncertainty will ensue in Switzerland. Mr Hancké says. “While the EU is committed to some level of tax harmonisation, the whole process is local [in Switzerland], and therefore highly unpredictable.”