Implementation of a global taxation reform in Switzerland

The Swiss government has pledged to enter into force the minimum taxation rate for a number of companies from 2024 concerted by the Organization for Economic Co-operation and Development and G20 member states. The decision was approved by the Federal Council during its meeting on 12 January 2022.

Under the OECD/G20 BEPS Project, the new rules will set the minimum rate of 15% for multinational corporations (MNCs) with a turnover of more than €750 million as part of the international taxation reform. While the new rules are aimed at multinationals, local companies and small and medium-sized enterprises will not face any change.

Given the complexity of the matter, which eventually requires changes in the constitution, the authority will impose measures through an ordinance and only then initiate an amendment into the Constitution which will require a national vote expected to take place in June 2023. It will put the new taxation regime on a standard legal footing and through the ordinance, the state will join the new global regime now.

The approach introduced by the OECD consists of two work streams (Two-Pillar Solution) where Pillar One refers to allocating profits of MNCs to market jurisdictions and Pillar Two – international minimum profit taxation rules.

Pillar One specifies the creation of a new nexus rule by the implementation of the international rules on apportioning among countries the taxation of its corporate profits. It aims to reflect the changing nature of business models, including the ability of companies to conduct business without having a physical office.

Pillar Two covers MNCs with an annual trading activity of at least €750 million placing a minimum tax rate of at least 15% in each jurisdiction. If a country does not collect taxes on the respective domestic companies at that rate, other countries tax the undertaxed income.

Main points regarding the execution of global taxation reform in Swiss jurisdiction

• The minimum tax rate was established for MNC with an annual turnover of at least €750 million.
• Cantons will collect additional taxes;
• The additional annual tax revenue is contingent on the general rules of national financial equalization.
• The minimum taxation will be applicable to groups with headquarters in Switzerland (approximately 200-300 entities) as well as subsidiary companies of foreign corporations (approximately 2,000 entities).
• According to Finance Minister Ueli Maurer, the new changes will not cover domestic small, and medium-sized enterprises.

Future outlook

Imposing a minimum taxation rate into Switzerland will spare additional tax proceedings in other countries for large companies. Switzerland should also not abstain from any tax revenues it has a right to. Moreover, the locational measures at the cantonal level ensure that Switzerland offers favorable conditions for running a business.

Since the promulgation of the Pillar Two solution occurred recently, a detailed impact assessment of a new framework is not possible yet.  However, the Swiss administration works closely with the cantons, local governments, and other interested parties to secure the duly execution of the new taxation rules in the country as well as continue maintaining the status of Switzerland as an attractive business hub.

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