Reuters International

By John Revill

ZURICH (Reuters) - Switzerland edged closer to implementing long-awaited business tax reforms on Tuesday, when the lower house of parliament approved proposals aimed at meeting global taxation standards.

The changes include abolishing special status for 24,000 companies, which gives them tax rates of 8 to 12 percent, depending on where they are based in the country. Ordinary companies are taxed now at a rate of around 12 to 24 percent.

The tax rate will average 16 percent for all companies when the new regime is phased in during the next few years.

Tax reform has been a hot topic in Switzerland since 2007. It picked up pace after the financial crisis as countries cracked down on tax avoidance by companies.

Switzerland has signed up to the Organization for Economic Co-operation and Development's action plan on base erosion and profit shifting, which are intended to prevent corporate tax abuse. Revenue losses through such measures are estimated at $100 billion to $240 billion annually, according to the OECD.

"The pressure on Switzerland has really increased in recent years as part of the general discussion on tax regimes," said Elias Hafner, an economist at UBS. "The challenge for Switzerland is to scrap these special statuses but remain an attractive location for businesses."

Under the new proposals, tax privileges for holding companies, management companies and companies that get most of their sales outside of Switzerland will be abolished.

In return, companies will get favourable treatment for the income they get from patents and increased deductions for research and development costs. Several cantons will also lower their general business tax rates.

The proposals, which could be challenged by a referendum before their planned introduction in 2019, could cut the income of some cantons. Extra income from companies with special status now may not offset the reduced tax from companies taxed at the new standard rate.

The Swiss government said it will increase the portion of tax it gives to the cantons and has earmarked almost 1 billion Swiss francs (1 billion pounds) to cover the shortfall.

In the longer term, Switzerland hopes the tax overhaul will attract more companies whose tax bill will eventually rise as their business grows.

"The successful Swiss way has always been: lower the tax and the business will come," said Jacqueline Hess, a partner at consultancy Deloitte.

The proposed new law faces final approval by both houses of parliament on Friday, seen as a formality.

($1 = 0.9639 Swiss francs)

(Edjiting by Larry King)

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