Switzerland needs to burnish its appeal to multinationalsby presenting a simplified plan to lower corporate tax ratesafter voters rejected proposals they feared would squeeze publicservices and shift the fiscal burden onto individuals.

Voters rejected the reform package by 59% to 41% Sundayfollowing more than a decade of pressure on Switzerland from theEuropean Union to scrap tax breaks for multinationals.

The Swiss government, which warned rejecting tax reform woulddrive foreign companies away, has yet to present a Plan B.Lawmakers need to plug that gap by discarding the fiscalconcessions that alienated voters and focus on the core objectiveof aligning tax rates for local companies and multinationalsat a competitive level, said Thierry Boitelle, a lawyer at BonnardLawson in Geneva.

“We need to act really quickly to avoid more damage to the Swisspro-business image,” said Boitelle. “They need to remind themselvesthat these companies didn't come to Geneva and Vaud for the qualityof life. They came for the tax benefits.”

Cantons such as Geneva, Vaud and Basel have proposedcutting their headline tax rates after Switzerland bowed to EUpressure to adopt international standards and scrap preferentialfiscal regimes that attracted thousands of multinationals. Genevaplans to lower its corporate tax rate to 13.49% from 24.2%, but isrelying on federal funds to plug part of its 440 million-franc($440 million) revenue gap.

Provisions such as the notional interest deduction, whichwere inserted late into the tax-reform package and attracted strongopposition because of its potential impact on cantonal revenues,will probably be discarded.

“I'd expect the various measures to be watered down, possiblythe notional interest rate reduction will be scrapped,” saidAndreas Staubli, managing partner at PricewaterhouseCoopers inZurich.

Another provision, the patent box, which allows tax discountsfor drug makers and other companies deriving income from patents,will also come under scrutiny, Boitelle said. Lawmakers should aimto formulate a new reform proposal by the spring to end uncertaintyfor businesses, he said.

“All factions of the Swiss political spectrum realize we need tomove quickly,” he said.

OECD Crackdown

Switzerland has committed to replace the existing tax breaks bythe end of 2018 as the Organization for Economic Cooperationand Development cracks down on such loopholes. While the country isunder no immediate threat from being blacklisted, there is “ alittle bit of pressure” to dismantle its existing regime in twoyears' time, Pascal Saint-Amans, director of the OECD's Centre forTax Policy and Administration, told newspaper Le Temps.

For the moment, the Swiss commodity trading industry, whichaccounts for 3.8% of the economy and about 35,000 jobs, remainssanguine.

“We still expect a compromise text to be adopted by 2019 ascompanies need legal and fiscal security,” said Stephane Graber,secretary general of the Swiss Trading and Shipping Association,which represents about 190 commodity traders, shippers andfinanciers.

The rejection of the reform comes as increased taxcompetition looms following the U.K.'s Brexit vote and pledges byDonald Trump to lower corporate rates in the U.S.

“Even with the best tax reform you have, perhaps U.S. companieswon't have reason to stay or come to Switzerland,” said DenisBerdoz, a partner at Baker & McKenzie in Geneva who specializesin tax and corporate law. “And we still must expect a reduction inthe corporate rate in the U.K.”

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