On 12 February 2017 a majority 59.1% of Swiss voters
rejected Corporate Tax Reform III (CTR III), which will lead to a
redrafting of the original proposal.
The draft Corporate Tax Reform proposal was published by the
Federal Council on 5 June 2015. Following discussion,
Federal Parliament approved the bill for CTR III on 17 June
2016, and it was subject to a popular referendum on Sunday 12
The 59.1% rejection of CTR III by Swiss voters will result in a
delayed implementation, as the proposal must now be redrafted.
It's possible the delay will have a knock-on effect with the
European Union, OECD and maybe even a number of bilateral
relationships, as Switzerland was expected to abolish its
preferential tax regimes by 31 December 2018.
Theoretically, it may still be possible to meet this date, but
the consensus appears to be that the CTR III project will now be
delayed by two to three years.
Reason(s) for rejection
It would seem that the introduction of the notional interest
deduction and partial taxation of dividend income for individuals
were the main drivers for the rejection of CTR III by Swiss voters.
This, combined with the Swiss tax payer having to pay the shortfall
in tax revenue, according to CTR III's opponents, seems to have
dealt a decisive final blow.
Whatever the reasons for the rejection, all do seem to agree
that reform of the Swiss tax system is required; particularly with
regard to the difference in taxation between foreign and Swiss
companies, and the reduction of effective corporate income tax
What happens now?
The Federal Council will need to start working on a revised
proposal for CTR III, taking into account the discussions leading
up to last Sunday's referendum. It is expected that some of the
hotly-disputed items will be taken out. The sooner more clarity can
be obtained on about what is 'in' and what is
'out,' the better. The concerns about potential counter
measures from the European Union are there.
The rejection of CTR III means the current tax rules stay in place,
including the preferential tax regimes. Regardless of CTR III, some
Swiss cantons may decide to decrease their corporate income tax
rates; this may help companies to deal with the prolonged
uncertainty on their tax status.
Companies that are under pressure internationally in relation to
the use of a preferential tax regime in Switzerland may wish to
make use of the tax-free 'step-up practice'.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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