After a long political process and a fiercely contested vote, the Swiss people rejected the proposal for Corporate Tax Reform III (USR III) at the ballot box on 12 February 2017. The main thrust of the proposal was on the one hand the abolition of the special regimes for companies (mixed company, holding company, principal company, finance branch), the introduction of new regulations in the field of research and development and the deduction of interest on equity capital with the aim of maintaining Switzerland's attractiveness as a business location despite the abolition of the special regimes.

Due to the rejection of the USR III nothing happens at the moment. The status quo is maintained. The political authorities at federal and cantonal level did not present a Plan B during the voting campaign, nor did they formulate a scenario in the event of a no vote. It therefore remains open how to proceed.

Pressure from foreign organisations

For almost 13 years, Switzerland has been under pressure from the OECD and the EU and has been called upon to abolish the criticised tax privileges for certain companies. As a member state of the OECD, Switzerland will have to propose a Plan B within the shortest possible time so that the tax privileges are history as quickly as possible. As long as this status quo is maintained, there is a danger that Switzerland will once again end up on a "black list" or be weakened in the form of CFC rules, and that it will have to reckon with sanctions as well as trade barriers in international competition.

The abolition of tax privileges was undisputed in the referendum campaign. The reason for the rejection is thus mainly to be found in the package of all the replacement or compensation measures that were included in the voting package as a "counterpart" to the abolition of the special regimes and which were promised by the cantons:

  • Introduction of a patent box;
  • Additional deduction for research and development;
  • Technical interest deduction on equity;
  • Reduction of profit tax rates in the cantons.

Additional elements and politically controversial in the area of "counter-financing" were the planned increase in dividend taxation and the increase in the federal share

of the cantons to direct federal taxes.

A new template will take time, despite all assurances. Whether the new bill will be discussed and decided by 2019 is open, desirable - but not certain. The Federal Council recently instructed the Federal Department of Finance (FDF) to prepare a new draft, which is expected to be presented at the end of June 2017.

Until today and until the introduction of a new tax package, the old regulations remain in force, which are attractive and will continue to be applied by the tax authorities.

The reaction of the OECD, the EU and the G20 to Switzerland's "no" to USTR III cannot be assessed today and creates uncertainty.  

Switzerland's mediation talent

The fine art of Swiss politics and diplomacy must be to keep foreign reactions and dangers in balance with the domestic decision-making process. Ideally, this means that foreign governments and organisations should not impose any "punitive measures" on Switzerland until the new corporate tax reform bill has been decided and adopted.

This balance is jeopardised if the domestic decision-making process for the new reform takes too long, if insufficient compensation is found for the abolition of the special regimes, if foreign organisations and governments lose patience and decide unilaterally to take measures against Switzerland.

In this difficult balancing act, a "talent" of our institutions is needed, which is often overlooked and unaware. Over "centuries" Switzerland has practised and proven itself in the search for a balance between different state interests. No other country in the world is as recognised as Switzerland as a mediator and helper in the search for solutions between countries. Switzerland must deploy this capability at this delicate fork in the road. On the one hand, in the domestic political search for a new solution for the revision of corporate tax law and, on the other, in the avoidance of foreign punitive measures. Switzerland must credibly demonstrate that it is interested in a solution and will find one, but that the political process cannot be arbitrarily accelerated.

As soon as the balance is lost, the reactions and consequences in Switzerland are difficult to assess.

Risks with the status quo

If Switzerland does not find a solution in the foreseeable future, so that foreign countermeasures take effect, the cantons could be forced to abolish tax privileges unilaterally and without additional financial support from the federal government, and to reduce profit tax rates. In addition, any compensation measures could be introduced by the cantons on their own initiative, bypassing the "Tax Harmonisation Act". The canton of Nidwalden, which has already been using a licence box for several years, could serve as an example.

With this scenario, as with the status quo, the cantons of Lucerne and Zug are among the main beneficiaries. On the one hand, these cantons have practically no changes in tax rates when tax privileges are abolished, and on the other hand they have lucrative general conditions. In high-tax cantons such as Geneva, Zurich, Basel and Vaud, the difference between the regular tax rate and the privileged tax rate is much higher, although the scenario could well be that certain companies move to low-tax cantons. This would have negative consequences for federalism as well as for intercantonal tax competition.


There is currently great excitement about how the companies concerned, the EU and the OECD will react to the "no" to USR III. The fact is that Switzerland has already been attractive in the past and the status quo will remain so. The undisputed abolition of tax privileges will be tackled immediately as part of a new revision. Switzerland must promote this process abroad and maintain a balance between foreign pressure and domestic decision-making processes. Switzerland is well prepared and experienced for this balancing act. The search for a new solution is a sign of strength for Switzerland and will ultimately lead to a sustainable new reform that will ensure Switzerland's attractiveness for the future. Politics and diplomacy should reflect on the unique mediation skills and promote the solution for the future both internally and externally in lockstep. Then 12 February 2017 is the starting point for strengthening rather than weakening Switzerland's position as a tax location.  

You can find further contributions to current tax topics on the Website of Bucher Tax AG.