Voters in Switzerland have shocked the political establishment by rejecting a reform plan that would have brought the country’s corporate tax system in line with international standards.
The tax reforms, which had widespread support from the business community, would have eliminated a set of special low-tax privileges that had encouraged many multinational companies to set up shop in Switzerland.
Experts say the future of the Swiss tax system is still unclear. The outcome of the vote could create headaches for companies that had relied on its implementation and deter companies that had been considering moving to the country.
“They don’t know what (tax) measures will be available… That’s not a very solid basis for making investment decisions,” Peter Uebelhart, head of tax at KPMG in Switzerland, said in a video statement.
Switzerland has been under intense pressure from G20 and OECD countries in recent years to clean up its tax system. The country risks being “blacklisted” by other nations if it does not change its tax system by 2019.
Many voters rejected the tax reform package out of fear that it could reduce the amount of revenue collected by the government, according to Stefan Kuhn, head of corporate tax at KPMG in Switzerland. That could have led to tax increases on the middle class.
The current tax system gives preferential treatment to some companies with large operations abroad. International tax authorities say the rules amount to unfair corporate subsidies.
Martin Naville, head of the Swiss-American Chamber of Commerce, said voters may not have understood the complexities of the reforms. The measures were rejected by 59% of voters.
“I think it’s a very bad day for Switzerland,” Naville said. “Clearly, uncertainty and credibility in the Swiss (system) have taken a hard hit.”
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Swiss authorities say they will act quickly to create a revised tax reform proposal. Naville said he expects new rules to be designed in the coming months.
“All stakeholders now have to take responsibility for developing an acceptable competitive tax system and regaining credibility regarding the famous political stability that gave Switzerland such an advantageous position,” he said in a statement.
Naville hinted that possible tax reforms in the US and UK could tempt Swiss-based companies to relocate, putting further pressure on Switzerland’s tax base.
CNNMoney (London) First published February 13, 2017: 10:10 am ET