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Switzerland renews push for tax reform following referendum vote

Switzerland renews push for tax reform following referendum vote

SWITZERLAND: Switzerland’s executive branch has launched an ambitious effort to modernize its preferential tax regime by eliminating some of the benefits that undermined the alpine nation’s 2016 corporate tax reform law. The country’s lawmakers are targeting a key change that omits notional interest deductions—which would have permitted Swiss multinational companies to deduct from their interest-adjusted corporate income tax on above-average equity.

The move comes less than three months after Swiss voters rejected the Corporate Tax Reform III law in a February referendum due to concerns that its various offsetting measures would result in lost tax revenue for national public services. This month’s debate kicks off a year-long legislative process aimed at providing legal certainty for roughly 24,000 Swiss-based multinational companies like Nestle SA, Novartis AG, ABB Group Holdings Pty Ltd., and Japan Tobacco Inc. The original goal of Switzerland’s 2016 Corporate Tax Reform Act III was to curb preferential tax regimes for multinational companies and prevent Switzerland’s 26 cantons from exempting holding companies and management companies from paying corporate taxes. The measures were aimed at bringing Switzerland in line with a set of global anti-tax-avoidance guidelines established by the Paris-based Organization for Economic Co-Operation and Development.

The European Commission has threatened to blacklist countries that don’t adhere to international tax norms and threatened to impose various countermeasures like deduction limits for European companies that do business with Switzerland. The 2016 law also sought to provide new benefits to the 24,000 companies that currently have a special tax status in Switzerland, to ensure they didn’t leave Switzerland for more competitive tax jurisdictions.