Rejection of corporate tax reform III - Zurich heavily affected

On February 12, the Corporate Tax Reform III (USR III) was clearly rejected with 59.1% of the votes and a no from 22 cantons, despite the Federal Council and all cantons supporting USR III. This result could have serious consequences for the largest and most important financial center in Switzerland.

Content of USR III

‍USR III was initiated against the backdrop that on October 14, 2014, Switzerland assured the EU that it would end the preferential taxation of holding, domicile, and mixed companies at the cantonal level. This was intended to ensure equal treatment of domestic and foreign companies and harmonization of the Swiss tax system with those of the EU and the guidelines of the OECD. New tax reductions and privileges were supposed to maintain the attractiveness of the location and minimize tax losses.

‍Possible Solutions

‍There are hardly any simple solutions to complex problems. It is clear that the federal government wants and needs to propose a new tax reform as soon as possible. In the meantime, however, there could be increased tax competition among the cantons, which could independently reduce corporate income taxes. In this context, the Canton of Zurich has a disadvantage as it heavily relies on corporate taxes and thus probably cannot reduce the tax rates as much as other cantons. In the event of the acceptance of the USR III, it was planned to reduce the total corporate tax rate from 21.1% to 18.2%. Furthermore, the financial directors of the city and canton have other views on how to proceed. However, supporters of USR III demand that the canton must now significantly cut corporate taxes to remain competitive.