Bloomberg

(Bloomberg) -- The Swiss are set to cast their votes on a government plan to change the tax system for big international companies, in a bid to keep the country globally competitive.

Polls ahead of Sunday’s referendum showed the electorate split on the reform, which would allow companies deductions for income from patents and research and development activities. The government says that at new regime is needed to allow Switzerland, which has to give up special breaks for multinationals due to international pressure, to stay attractive as a place to do business.

Opponents of the reform, who triggered the referendum by collecting 50,000 signatures, fear it will strain the public purse and increase the burden on the middle class. While proponents concede it will cause a shortfall in government revenue, they say it’s still essential to keep the country, which has already experienced a slowdown in growth due to its strong currency, attractive to businesses.

“This reform is crucial, we need it to remain competitive,” Serge Dal Busco, head of the Geneva cantonal finance department said in an interview. “If it doesn’t pass, all cantons will be hurt.”

For a QuickTake explainer on Switzerland’s corporate tax reform, click here

Even with the proposed tax regime, which has been years in the making, Switzerland may struggle to keep its standing. The U.K. already has lowered its corporate rate and President Donald Trump has said he wants to cut the U.S. levy by more than half.

The plebiscite is the latest decision that risks damaging the economy in Switzerland, which is one the world’s most affluent countries and regularly tops the World Economic Forum’s global competitiveness index. Following an international crackdown on banking secrecy, stringent limits on executive pay were introduced in 2013 and, the following year, a referendum on immigration quotas threatened to undermine ties with the European Union.

If it passes “this vote will guarantee stability for businesses,” said Gilbert Ghostine, chief executive officer of Meyrin, Switzerland-based fragrance maker Firmenich International SA. “The worst thing for companies like us is uncertainty. As long as we have medium-term and long-term stability, all will be good.”

To contact the reporters on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net, Albertina Torsoli in Geneva at atorsoli@bloomberg.net. To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss, Dylan Griffiths

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