The government said Switzerland was suffering as a business location as a result of the current arrangements, which have been criticised by the Organisation for Economic Co-operation and Development (OECD), as it sought comment from cantons, business groups and trade unions about its latest plans, which it said would cost it 750 million Swiss francs ($785 million).

To help sweeten the change, Swiss family allowance would rise by 30 francs per month so that parents get 230 francs for each school-aged child and 280 francs for those at university.

"The proposal will make a significant contribution to having an appealing location and thus to added value, jobs and tax receipts. The reform will additionally meet international requirements concerning corporate tax law," the government said.

Its new proposals would still abolish special tax status enjoyed by 24,000 foreign companies that pay corporate tax rates as low as 7.8 to 12 percent, which is far below the 12 to 24 percent rate applied to 'normal' Swiss companies.

Key changes include a clearer definition of the so-called "patent box", which allows profits from new products developed in Switzerland to get tax relief of up to 90 percent.

A controversial notional interest deduction on excess equity has been scrapped, while dividends will be subject to higher taxation. At least 70 percent of dividend payments would be subject to tax, up from 60 percent now.

In response to the mooted tax rises, cantons are expected to lower their tax rates for 'ordinary' companies to deter them from leaving. To cover the shortfall, the federal government will increase the share cantons get from federal tax to 20.5 percent from 17 percent.

The consultation runs until Dec. 6 before parliament votes early next year, although it could be disputed by another referendum if opponents gather 50,000 signatures.

The earliest the new measures could come into force would be 2020, the government said.

($1 = 0.9554 Swiss francs)

(Reporting by John Revill; editing by Alexander Smith)