Reform of withholding tax flops in Swiss ballot

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Voters have thrown out a decision by parliament to scrap withholding tax on interest from Swiss bonds.

Final results show 52% of voters coming out against the reform, which was aimed at boosting investment in Switzerland as well as strengthening the country’s competitiveness and its finance industry.

Cédric Wermuth, co-president of the left-wing Social Democratic Party which helped force the referendum, said voters had understood that the plan by the government and the centre-right majority of parliament benefited only a few major companies.

At a news conference on Sunday, Finance Minister Ueli Mauer expressed disappointment at the result, saying it was missed opportunity.

“It sends a bad signal to international companies,” he said and he deplored the perceived lack of understanding of many voters for the economic context.

The Swiss government levies a 35% withholding tax on income from financial investments, including dividends from stocks and other securities as well as bank accounts, but taxpayers can obtain a refund. The tax is meant to discourage tax evasion.

Successful left

It’s latest defeat for the government and parliament against the political left, which had also successfully challenged a previous plan to abolish stamp duty in a nationwide vote earlier this year. A major corporate tax reform was also rejected by voters in 2017.

Two years later, voters then approved a plan to scrap preferential taxes for multinationals, with the benefits feeding into the state old-age pension scheme.

Earlier this year, the Social Democrats and Greens collected enough signatures for a nationwide vote on the reform of the withholding tax approved by parliament.

In their campaign they claimed that wealthy investors would be the main beneficiaries from the tax breaks and that the state would lose out on badly needed revenue. They also warned that the reform would encourage potential tax dodgers.

Supporters and opponents of the tax reform notably disagreed considerably on the promised boost for the economy and the risks of a potential drop in revenue. Estimations by the government ranged from CHF25 million ($25.9 million) annually in the short term which would be compensated in the long run. The Trade Union Federation warned of shortfalls of CHF800 million in the long run.

Plans are currently underway to prepare for the implementation of an international corporate tax deal agreed by the Organisation for Economic Co-operation and Development (OECD). It aims to impose a minimum tax rate of 15% for big companies.