SWGAY Swatch Group AG (PK)

By Brian Blackstone 

ZURICH -- Swiss voters Sunday rejected a corporate-tax-overhaul plan backed by the government and business, in a blow to the wealthy Alpine country's hopes to bring its tax policies in line with international norms while maintaining its global competitiveness.

In rebuffing the government's proposals, voters were swayed by concerns the plan was too generous to corporations at the expense of individual taxpayers. Proponents of the plan said its rejection places Switzerland's economy -- home to global corporate giants including Nestlé SA, Swatch Group AG and UBS Group AG -- at risk.

According to preliminary results released by the government, 59% of voters cast ballots against the reform plan, which parliament approved in 2016, while 41% were in favor. The referendum results are binding, meaning parliament must come up with a new tax reform plan.

Swiss finance minister Ueli Maurer said at a press conference Sunday that Switzerland is committed to changing its corporate tax system but that there isn't much wiggle room to revise the plan that was voted down. He said it was unlikely now that a new program will be in place by January 2019, which the tax overhaul was slated to go into effect.

Swissmem, an association of mechanical and electrical engineering companies, said in a statement after the vote, "The rejection of this reform leads to legal uncertainty which could have negative consequences on the investment activities of enterprises."

"The risk is that this weakens the Swiss industrial environment and will lead to job losses, especially in a challenging economic period," the association said.

Polls had given the pro-government side a sizable lead in December, but they tightened ahead of Sunday as opponents successfully cast the plan as a giveaway to business.

The rejection of the government's tax plan was widespread across nearly all of Switzerland's 26 cantons. One of the few to vote in favor was Vaud in western Switzerland, which is home to Nestlé.

Switzerland faces pressure from the European Union and other international institutions to get rid of the special deals that individual states, known as cantons, strike with multinational companies that reduced their tax burden.

Switzerland's average corporate tax, of around 21%, is lower than in other developed economies including the U.S., Germany and Japan, according to data from the Organization for Economic Cooperation and Development.

Switzerland isn't in the EU, but it agreed with the EU in 2014 to abolish the special arrangements that taxed foreign and domestic revenue differently. If nothing is done, Swiss-based companies face the prospect of retaliation from tax authorities in other countries where they do business.

Parliament last year approved legislation eliminating these tax preferences, while giving cantons leeway to adjust their rates. Under the government's failed plan, the current patchwork system would have been replaced by a corporate rate -- lower in most cases -- that would apply across firms in a particular canton. Sweeteners were added for patent-related revenue, research and development, and capital taxes.

But opponents gathered the 50,000 signatures required to force Sunday's referendum.

Write to Brian Blackstone at brian.blackstone@wsj.com

(END) Dow Jones Newswires

February 12, 2017 13:35 ET (18:35 GMT)

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