Referendum as final hurdle for tax bill

The Young Greens have already announced the referendum, and there are also dissatisfied people in the SP base. If the opponents succeed in collecting 50,000 signatures in time, the deal is expected to be put before the people on 19 May 2019. From today's perspective, the chances of the tax bill being presented at the ballot box are difficult to estimate. The vote against the previous project, Corporate Tax Reform III, has had a surprisingly dynamic impact. For example, some critical statements by former finance minister Eveline Widmer-Schlumpf caused approval of the bill to collapse. There was unexpectedly much resistance from the cities and municipalities.

An alliance of left-wing opponents of tax cuts and right-wing opposition to AHV financing could be the downfall of tax bill 17. On the other hand, the proponents will keep the ranks closed this time. Too much is at stake for the Swiss economy.

The core of the tax proposal is the abolition of cantonal tax privileges for holding companies and other special purpose companies, which are no longer accepted internationally. The EU has given Switzerland until the end of 2018 to do this. If a referendum is held, this deadline will not be met.

Uncertainty for companies

The EU finance ministers could move Switzerland from the grey watch list to the black list of non-cooperative tax jurisdictions in March 2019. It is possible, however, that they will postpone the step until after the referendum vote in May.

It is still unclear which sanctions are associated with a place on the black list. However, the legal uncertainty is in any case a burden for the companies concerned. After all, as of today, top management knows what tax climate could prevail in Switzerland in the future.

Tailor-made solutions

Initially, almost all cantons are planning a tax cut for companies. In Geneva, for example, the profit tax rate is to be reduced by over 10 percentage points. Only inner and eastern Swiss low-tax cantons will stick to their rates.

Zurich is expected to be the canton with the highest corporate taxes, at 18.19 percent. However, it will benefit from a tailored deduction on excess equity.

Elsewhere, companies also benefit from the Patentbox, in which income from patents and comparable rights is taxed at a reduced rate. Cantons can allow more than the actual expenditure on research and development to be tax deductible, which is equivalent to a subsidy. In addition, there is relief in terms of capital tax or the disclosure of hidden reserves.

In contrast, major shareholders tend to pay more income tax on dividends in the future. The federal government will now tax 70 percent of dividends instead of 60 percent as before. In the cantons, the tax burden is currently between 35 and 70 percent. In future, at least 50 percent will have to be paid, which is roughly the current average.

As a further concession to the Left, which brought down Corporate Tax Reform III in February 2017, the capital contribution principle will be restricted. This allows companies to distribute billions of euros in capital contributions tax-free to shareholders. In future, listed companies will only be allowed to do so to the extent that they also pay taxable dividends.

Those status companies that lose their tax privileges will pay higher taxes in the future. The administration has calculated that this even applies to those who take full advantage of the new special regulations. On the other hand, the tax burden will fall for those companies that were previously taxed in the ordinary way. The public sector must expect to lose tax revenue.

The bottom line for the federal government is that the tax bill will cost around CHF 700 million. If the cantons implement their plans, they will lose a total of around CHF 1.3 billion. This brings the total cost to 2 billion francs. As compensation, the same amount will flow into the AHV. Employers and employees together contribute 1.2 billion francs, the federal government a good 800 million francs.