Macro 2 minutes to read

Swiss vote for EU rules, but the real hurdle is yet to come

Michael McKenna

Head of Editorial Content, Saxo Bank

Summary:  Sunday's Swiss vote on firearms and taxation saw voters agree to move closer to European Union standards, but the true test is yet to come.


Switzerland overwhelmingly chose to move closer to European Union tax and firearm regulations on Sunday, with 66.4% of voters backing a corporate tax reform programme that will eliminate special tax breaks for multinational corporations.

Under the new legislation, the 24,000 foreign firms based in Switzerland will lose the exemption that allowed them to pay less tax than their domestic counterparts. The Swiss government, however, will lower baseline rates across the board to prevent these firms seeking greener pastures elsewhere.

As part of the deal tabled Sunday, Bern will also allot an extra CHF 2 billion to the state pension scheme, a move that has led forecasters to project a budget shortfall of precisely this amount.

'They had no choice'

The scope, cost, and nature of the programme likely reflects a measure of anxiety among Swiss officials, who have long desired alignment with OECD and EU regulations concerning taxation.

“Sooner or later, Switzerland would have been forced to overhaul its corporate tax rules,” says Saxo Head of Macro Analysis Christopher Dembik, adding that “it could have come from the EU or the US, but ultimately the country had no choice”.

“The initial, negative impact on the Swiss budget could prove complicated, but the new fiscal regime is not bad at all, says Dembik.

“Firms will be able to cut costs by claiming deductions on income from patents or R&D spending, business attractiveness remains still very high, the economy is resilient despite the trade war’s impact and the unemployment picture is still bright. I think Switzerland will be entirely able to offset the outcome of this vote.”

Equities face late-June standoff

Although the taxation scheme has been settled, it is Switzerland’s next round of voting that could prove most crucial for investors.

At the end of June, EU recognition of the Swiss stock exchange expires, with Bloomberg reporting that Brussels has made continued access contingent on Bern agreeing to a “framework” deal that’s unpopular with voters.

Aside from guaranteeing recognition of the Swiss exchange, the new framework would tighten the Swiss-EU relationship to a point that could see new EU laws (on wages, free movement, transport, and more) automatically applied to Switzerland, conflicting with the Alpine nation’s historic tradition of self-determination.

These negotiations have been ongoing for more than four years. In the worst case, EU equity traders could lose access to the Swiss exchange, removing a great deal of volume and liquidity from the SIX.

For its part, Switzerland has threatened to ban European exchanges from listing Swiss shares.

While Bern may have proved content to move closer to Brussels on taxes Sunday, the equities debate and the overall framework of which it is a part threatens to be far more contentious.

EURCHF (daily, source: Saxo Bank)

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