This weekend, voters in Switzerland derailed a comprehensive corporate income tax reform in a popular referendum with close to 60 percent. The corporate income tax reform also failed to gain a majority with the cantons (states), as only four cantons voted in favor, and of some of the larger cities in the country (in particular Zürich).
Following almost five years of legislative efforts to bring Switzerland's corporate income taxes in line with international standards by abolishing the no longer acceptable tax privileges for its holding and special tax status companies (the latter tax status basically meant no or only partial taxation of foreign-foreign sales of so-called domicile and administrative companies), the corporate income tax reform would have replaced these income tax privileges with a lower universal income tax rate applicable to all companies, by introducing in favor of the Swiss pharmaceutical industry a so-called patent box regime excluding mainly patent licensing income including a R&D super deduction of 150 percent, and - in favor of the Zürich financial industry - a notional interest deduction on surplus equity (and some further income tax alleviations).
A coalition of the Social Democrat Party, the Greens, trade unions, and church leaders (which all were supported in the last days of the campaign by Former Finance Minister Eveline Widmer-Schlumpf) argued that the proposed corporate income tax reform would have driven down tax revenues by CHF 2.7 billion each year, and that the "Mittelstand" would have to pay for this shortfall in the middle and long run through increased income tax and by cutting on public services.
The negative referendum comes at at time where Switzerland's federal government, all pro-business political parties and the country's business community wanted to present Switzerland to its European neighbours and the rest of the world as a continuingly attractive place for foreign investments. There is a consensus within Switzerland that a new bill must be passed rather quickly which will most probably contain the more or less same package of income tax privileges for the country's pharmaceutical and financial industry and at the same time one or more "sweeteners" for the stakeholders on the left side: a long desired topic on the leftist agenda is thereby a private capital gain tax.
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