Global minimum tax in Switzerland - the Swiss voters have to act now

Dominik Birrer
Partner Tax, PwC Switzerland

Katya Federspiel Alig
Managing Director Tax, PwC Switzerland

The «Base erosion and profit shifting 2.0» project led by the OECD, better known as BEPS 2.0, will lead to significant changes in Switzerland’s tax policies and its policy for promoting Switzerland as an attractive business location. During 2022 and in the first months of 2023, both the OECD and many countries have pushed ahead with further work concerning the global minimum tax (i.e. Pillar Two). Also Switzerland plans to introduce Pillar Two rules locally. The next milestone in this regard will be the upcoming public vote on 18 June 2023 where Swiss voters will decide on the required constitutional change that would then allow the Federal Council to enact the rules in Switzerland by way of an ordinance.

In October 2021, about 140 countries of the OECD/G20 Inclusive Framework (the «IF») agreed to implement a minimum tax regime for multinational group of companies with consolidated revenues of EUR 750 million or more, «Pillar Two». In this regard, the OECD released in December 2021 the Pillar Two model rules (the «GloBE Rules») to reform international corporate taxation. This first release was then followed by the publication of a commentary to the GloBE Rules in March 2022 and some further publications in December 2022 and February 2023. Further publications from the OECD are expected on a rolling basis.

Large multinational enterprises within the rules’ scope are required to calculate their GloBE effective tax rate for each jurisdiction where they operate. They will be liable to pay a top-up tax for the difference between their lower GloBE effective tax rate per jurisdiction and the 15% minimum rate. In most of the cases it is the ultimate parent entity of the group that is liable for the GloBE top-up tax in its jurisdiction’s territory. The goal of Pillar Two is to end the ‘race to the bottom’ on tax rates worldwide, under which countries had been competitively cutting corporate taxes to attract businesses with the impact that other countries felt forced to cut taxes to compete.

In late 2022 and in the first months of 2023, a lot of countries moved ahead by starting the local legislation process. Most remarkable milestone in this regard was the formal agreement reached on 15 December 2022 among the EU Heads of Governments on the introduction of the global minimum taxation proposal by the EU Member States. Since then, a lot of countries inside and outside of the EU issued announcements and/or draft legislation in connection with the planned local implementation of the GloBE Rules with effect as per 2024 or 2025 (e.g. UK, Germany, France, Ireland, Spain, Canada, Liechtenstein, Japan, South Korea, Hong Kong, Singapore, etc.). It can be assumed that the majority of countries of the IF will adjust their tax systems and introduce the GloBE Rules.

The OECD rules on minimum taxation are a so-called common approach. This means that strictly speaking countries would not be legally obliged to adopt the rules but if they decide to incorporate them into national law, they should be guided by the GloBE Rules. However, if Switzerland would not introduce the GloBE Rules by way of local legislation, other countries could collect the difference between the lower tax burden in Switzerland and the minimum taxation of 15%. The affected groups would therefore have to pay the additional taxes abroad instead of in Switzerland. Hence, to ensure that Switzerland is in control, it is important that the Swiss implementation date is aligned with the one in other countries.

As a result of that, the Federal Council decided in January 2022 to implement the minimum tax rate proposed by the OECD by means of a constitutional amendment. Based on this, a temporary ordinance is intended to ensure that the minimum tax can be implemented in Switzerland. The law will subsequently be enacted in the ordinary way (within six years the latest). Swiss Parliament agreed in December 2022 on the constitutional article on the OECD minimum tax and as a next step, the Swiss electorate will now vote on the bill on 18 June 2023. If the vote is accepted, the Federal Council can then implement the GloBE Rules through a temporary ordinance that could be effective as per 1 January 2024¹. Timely implementation of the minimum tax secures that the additional tax stay in Switzerland and stabilizes Switzerland as business location.

Overall, the Swiss approach of tackling the Pillar Two-related implementation challenges is to ensure a full alignment with the OECD Model Rules and related Commentary. This allows taxpayers certainty that the Swiss rules are OECD-compliant and should thus be internationally accepted. This will help to maintain Switzerland’s current location attractiveness from an international perspective.

_{¹If the implementation in other countries is delayed, the Federal Council will re-examine the entry into force of the ordinance. Accordingly, the date of entry into force is still left open in the draft ordinance.}

Learn more about BEPS 2.0

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