Lessons for UK from Swiss tax referendum

15 February 2017

The OECD BEPS initiative has rarely been far from the news since 2014 when the OECD published proposals to defeat tax avoidance by multinational companies. With implementation now well advanced, countries around the world are making changes to their tax and information rules to comply with the new international requirements.

Against that background, the Swiss government proposed a round of tax reforms, the third in recent years, to achieve three things. First, to abolish special arrangements for multi-national companies. Second, to make other tax changes intended to discourage those companies from moving abroad. Third, to give more flexibility to cantons to improve their competitiveness.

 On 12 February 2017, the Swiss rejected these proposals, with 59.1 per cent voting against the changes. This leaves the Swiss authorities in a delicate position. On the one hand, they must now develop new proposals which are acceptable to voters. On the other, they must ensure that the resulting uncertainty does not deter new investment from overseas or scare away existing investors.  

 So what are the lessons for the UK from this?

 To state the obvious, while the UK’s relative inexperience in referendums might be thought to account for some unexpected results, even a nation which has developed considerable expertise in running referendums may still not get the answer that it expects!

 More widely, the conclusions are diverse. Is western liberal opposition to corporate tax avoidance and sweetheart deals waning? Or is this simply another example of the majority of voters identifying what they think is good for them, and voting accordingly? To what extent does it reflect a spreading disillusion with politicians and the institutions of government? Again, Switzerland would not be unique in this.  We will all have a clearer picture once the Swiss federal and cantonal authorities have framed fresh proposals which must find their balance in that uneasy space between international requirements, corporate financial reality and voter preference.

 Morale has a lot to do with this and here there is a point which UK politicians would do well to heed.  

 It’s said that many people in the UK, while remaining committed to the political process, are weary of politicians. For their part, many politicians seem to tread an odd line, wanting to be heard but simultaneously believing that voters will not be influenced by the cumulative effect of their positive or negative messages. And here things come very close to home. After years of having to fight for sufficient resource to do its job as the UK’s tax gatherer, HMRC has had a bad run with the Public Accounts Committee where all too often grandstanding by elected MPs, against civil servants who have limited right to reply, creates a wholly negative impression of what HMRC is actually doing with the resources which Parliament has chosen to give to it. Maintaining customer service to millions of people up and down the country, and continuing the fight against tax evasion as the PAC wishes it to do, will not be made any easier for HMRC if the PAC is simultaneously undermining the authority and credibility in the eyes of the public at large. Tax morale, both within HMRC and in the country as a whole, is easily damaged and difficult to heal.