In the referendum held on 19 May 2019, the Federal Act on Tax Reform and AHV Financing was adopted by the Swiss people and the cantons. Switzerland has made a large step forward in implementing the abolition of existing corporate tax privileges, which have drawn the criticism by the EU and the OECD over a long period. While the tax reform includes measures designed to safeguard Switzerland's competitiveness in the international tax scene, the social security (AHV) part of the reform provides the national old-age insurance system (AHV/AVS) with dearly needed additional funding to address the growing deficits of the public pensions system.
Background and objectives of the tax reform and its connection with AHV funding
Over the past years Switzerland became exposed to growing international criticism for some of its corporate tax practices, especially at the level of cantonal income taxes. While the European Union put Switzerland on a "grey list" of countries with harmful tax regimes, the OECD (and the EU) called for the abolition of cantonal tax privileges designed to attract companies with "mobile" international activities, such as holding companies, companies with cross-border trading, financing or licensing activities, and of certain special regimes at the federal tax level ("finance branches", "principal companies"). A first legislative attempt to abolish these regimes and to introduce internationally compliant measures (Third Corporate Tax Reform package, "CTR III") had been rejected through a referendum held on 12 February 2017.
The Federal Parliament eventually came up with a new reform package, which includes measures designed to strengthen the funding of the AHV system, to increase the approval of the tax reform. With the now approved tax reform the cantons will receive an increased share in the federal tax revenues, which allows them to refinance certain general corporate tax rate cuts designed to at least partially compensate for the loss of attractiveness due to the abolition of the special corporate tax regimes with its expected negative impact on the local labor markets.
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