Tax Rates for 24,000 Multinationals in Limbo as Swiss Public Rejects Reforms

As the U.S. mulls large corporate tax cuts, one other major western economy appears to be going in the opposite direction—at least for the estimated 24,000 multinational companies that operate there.

Swiss voters on Sunday rejected a proposed business-friendly change to the country’s tax code, prolonging a period of uncertainty for companies including Proctor & Gamble, Caterpillar and Japan Tobacco that can pay taxes there in the low single-digit percentages.

Currently, Swiss provinces—also known as cantons—offer foreign companies lower tax rates than domestic businesses. But those special-status breaks are due to be scrapped by 2019 following sustained pressure from the European Union and other Western countries.

Fearing companies might flee, the government proposed a plan that would allow businesses to deduct income arising from patents and R&D activities. Many cantons also indicated they would cut corporate tax rates across the board. Swiss voters, however, voted down the proposals by a margin of 59%-to-41%.

Finance Minister Ueli Maurer warned yesterday that businesses unsure of where tax policy was headed could stop investing or even leave Switzerland in the time that it takes to devise a new policy plan. “It will not be possible to find a solution overnight,” he told reporters.

Martin Naville, CEO of the Swiss-American Chamber of Commerce, said companies need clear guidance quickly. “This cannot be delayed further than 2019,” he said. “Time is running out and the international environment, with expected tax reduction in the UK and U.S. will put further pressure on Switzerland.”

The uncertainty adds to mounting difficulty for CEOs of American companies wishing to lower their tax bills in foreign jurisdictions, particularly after the European Commission last year ordered Apple to pay back €13 billion ($14 billion) to the Irish government. Both Ireland and Apple have appealed the decision, which was part of a crack down on special status “sweatheart deals” offered by Ireland to individual companies.

Roche, which is one of Switzerland’s biggest drug companies, said it was disappointed by the referendum result and warned uncertainty could hurt investment. Caterpillar, meanwhile, indicated it wasn’t ready to pull out of Switzerland just yet.

“Though this vote creates additional uncertainty in a challenging business environment, we remain confident Switzerland and the cantons will find a consensus allowing to pass a new federal tax law that will support innovation and employment,” a Caterpillar spokesman told Bloomberg.