Switzerland is on schedule to implement Pillar 2 rules by 1 January 2024

Dominik Birrer
Partner Tax, PwC Switzerland

David McDonald
Partner and Leader FSTP PwC Europe, PwC Switzerland

Pascal Buehler
Partner, PwC Switzerland

On 23 June 2022, the Federal Council released the Dispatch providing further details on the planned implementation of the Pillar 2 rules in Switzerland. As previously announced, Switzerland will introduce a supplementary tax. Based on the results of the public consultation process, the Confederation shall receive 25% of the receipts from the supplementary tax and the remaining 75% will go to the cantons and communes. The funds shall be used to promote the attractiveness of Switzerland as a business location.

The work on Pillar 1 at the OECD/G20 level has been delayed. The Federal Council will decide on its implementation in due course.

Work on Pillar 2 is well advanced. Switzerland will introduce a supplementary tax. The supplementary tax will be applied if a multinational group of companies does not meet the OECD required 15% minimum taxation in Switzerland. In this way, the additional tax revenue will accrue in Switzerland and companies can be protected from additional tax liabilities and proceedings abroad. In addition, Switzerland shall also introduce an OECD compliant Income Inclusion Rule (IIR) and an Undertaxed Payments Rule (UTPR) to tax foreign profits of multinational group of companies in case they are not already taxed at 15% or more (on an OECD basis) abroad.

The scope of application of these rules is limited to large groups of companies that achieve worldwide revenues of at least EUR 750 million. The supplementary tax will be a Swiss federal tax implemented by the cantons in addition and on top of the currently existing income taxes. The current federal and cantonal income tax rules will remain unchanged and continue to apply to all Swiss companies.

According to the bill, 75% of the tax revenues from the supplementary tax will flow to the cantons. The cantons are to take appropriate account of the communes. The remaining 25% of the new tax revenues will go to the Confederation. The Confederation shall use the additional funds to promote the attractiveness of Switzerland as a business location.

As a next step, the parliamentary process will start with the aim that the change in the Constitution can be voted on by Swiss citizens in June 2023. In addition, the consultation with respect to a first draft of the planned temporary Federal Council ordinance is expected to start in August 2022. So, everything continues to be on track for Switzerland to implement the new rules on minimum taxation with effect as per 1 January 2024 as planned.

In this regard, it is to be noted that also other countries recently released some news about timing of implementation. The UK announced on 14 June 2022 that their Pillar 2 legislation will first apply to accounting periods beginning on or after 31 December 2023. In addition, the EU Finance Ministers met on 17 June 2022 to agree a new compromise text of the Draft EU Directive in connection with Pillar 2. No unanimous agreement has been reached. As widely anticipated in the days before the meeting took place, Hungary declined to approve the compromise text whilst Poland did support the Directive this time. It remains to be seen how the discussions will proceed at EU level over the next days and potentially weeks. Furthermore, the question of whether the US minimum tax (known as Global Intangible Low-Taxed Income or GILTI) is a ‘compliant Pillar 2 regime’ remains still unanswered.