Swiss Vote Eliminates Special Deals for Multinational Corporations | Financial Buzz

Swiss Vote Eliminates Special Deals for Multinational Corporations

Swiss voters approved a government plan to raise the tax rate which certain multinational companies pay, bringing Switzerland in line with international standards yet maintaining its reputation as a haven for multinational companies. The measure, which passed by a margin of 66% to 34%, eliminates the ability that individual states within Switzerland, called Cantons, have to set special deals with multinational corporations. Historically, these deals have allowed multinational corporations to pay tax rates as low as 7.8%-12%, as opposed to the 12-24% average tax rate for local Swiss companies. Under this measure, multinational and domestic corporations would be taxed at the same rate.

Switzerland has come under fire by the Organization for Economic Cooperation and Development (OECD) and the EU, who say that these tax breaks give Switzerland an unfair advantage in attracting multinational corporations and oppose systems which tax foreign and domestic revenue differently. Even though this recent legislation eliminates the ability for cantons to significantly under-tax multinational corporations, Swiss corporate taxes remain at an average rate of 21.15%. In comparison, America and Germany have average corporate tax rates of 26% and 30% respectively.

Switzerland is heavily dependent on multinationals, generating a quarter of employment and a third of its GDP from these companies. Accordingly, the passed measure includes sections to allow Switzerland to keep its position as a favorite spot for multinational corporations. Overall tax rates for all companies that Cantons charge will fall, to maintain relatively low tax rates. Even so, the tax rate which multinationals expect to pay has risen, with roughly half of companies expecting a 5%-15% tax hike. To make up for this, Switzerland has allowed tax deductions from revenue from patents and R&D expenditures.

The Swiss federal government has promised to increase the share of federal tax that cantons get to make up for the estimated revenue shortfall of 2 billion Swiss francs. The measure also includes a section which increases the state pension system by 2 billion francs to calm concerns that citizens would ultimately fund the efforts to keep multinationals in the country.

In passing this measure, Switzerland was able to meet OECD standards, and scrap preferential treatment of multinational over domestic firms. However, Switzerland has been careful to keep its multinational corporations from fleeing to lower tax countries such as Singapore and Ireland through a variety of benefits.