By Michael Shields
ZURICH (Reuters) - Swiss voters clearly rejected plans to overhaul the corporate tax system, sending the government back to the drawing board as it tries to abolish ultra-low tax rates for thousands of multinational companies without triggering a mass exodus.
Most Swiss recognized the country needs reform to avoid being blacklisted as a low-tax pariah. But new measures proposed to help companies offset the loss of their special status breaks had created deep divisions.
Just over 59 percent of voters - who have the last word under the Swiss system of direct democracy - opposed the plans, which the country's political and business elite embraced under international pressure, provisional results on Sunday showed.
Finance Minister Ueli Maurer said the government now needed time to analyze and address with cantons the situation that business leaders called a dangerous legal limbo.
"It will not be possible to find a solution overnight," Maurer told a news conference in Bern, adding it could take a year to come up with a new plan and years more to implement it.
In the meantime, companies might stop investing in or even quit Switzerland, he said. He played down the risks of blacklists, saying the more immediate danger was that individual countries would start double taxation of Swiss-based companies.
The European Commission said it would comment on Monday.
Switzerland has been in the firing line of the European Union and OECD club of rich countries for years over the special tax status that cantons give foreign companies. Some pay virtually no tax above an effective federal tax of 7.8 percent.
Switzerland agreed with the OECD in 2014 to abolish by 2019 the special status, which has been an attractive perk for around 24,000 multinationals looking to lower their tax bills. That provision will now remain in place past the original deadline.
The government says such special-status companies employ 150,000 people and contribute half of federal corporate taxes.
(Graphic on tax rates: http://tmsnrt.rs/2kdi2Ow)
ARROGANCE AND HAUGHTINESS
To offset the blow, the government had proposed tax breaks on research and development in Switzerland, profits from patents developed there and deductions for excess company equity.
In addition, many cantons say they would reduce corporate tax rates for all companies to reduce the fiscal burden and dissuade multinationals from leaving.
After parliament approved the measures last year, critics gathered the 50,000 signatures needed to trigger Sunday's referendum, which overturns the parliamentary vote.
The No campaign was led by a coalition including the Social Democrats, Greens, trade unions and churches, who feared the public would bear the brunt of reduced company tax revenue through cuts in public services or higher personal taxes.
"The conservative parties wanted to push through tax reform with arrogance and haughtiness against the interests of the people. The Greens demand a new proposal with a sense of proportion," the opposition leftist party said of the vote.
The stakes are high for Switzerland, already coming to terms with the end its long-cherished tradition of banking secrecy. If multinationals pull out, the economy could suffer.
The changes come at a time U.S. President Donald Trump is considering slashing corporate taxes and Britain has hinted it could cut its rates when it leaves the EU.
"It is extremely important that we find a solution within the coming two years," Heinz Karrer, head of Swiss business lobby Economiesuisse, told Reuters.
(Additional reporting by Angelika Gruber and John Revill in Zurich and Foo Yun Chee in Brussels; Editing by Larry King)