Switzerland Update: The global minimum taxation is coming

From 1 January 2024, the provisions of the global minimum taxation will probably also apply to Swiss companies

The intended implementation of the redistribution of taxation rights to market states (Pillar One) and the global minimum tax (Pillar Two) made great progress in 2022. While the timing of the introduction of Pillar One, as well as the question of whether it will be introduced at all, is still uncertain, Pillar Two will most likely come into force in the EU, Switzerland and other countries from 1 January 2024. At the end of 2022, the Organisation for Economic Co-operation and Development (OECD) published so-called “Safe Harbour Rules” in particular, which provide for significant relief for corporations in certain cases. In February 2023, the OECD published the “Administrative Guidance”, which provided companies and tax authorities with further clarifications on the implementation of the minimum tax. In addition, the Swiss parliament approved the procedure proposed by the Federal Council for the implementation of Pillar Two.

Taxation of cross-border activities and global minimum taxation

142 countries of the OECD and the Group of Twenty most important industrialised and emerging countries (G20), the so-called “Inclusive Framework” – including Switzerland – have agreed to a comprehensive global tax reform. The global tax reform aims to introduce a global redistribution of the profits of multinational corporations with a turnover of more than 20 billion euros (Pillar One) and a global minimum taxation of 15% for multinational corporations with a turnover of more than 750 million euros (Pillar Two). The implementation of the reform will pose major challenges for companies, but also for states.

The following key takeaways can be drawn from the developments in 2022 until the end of April 2023:

Introduction of the global minimum tax on 1 January 2024 The countries of the European Union and probably most of the other OECD countries will introduce the global minimum tax on 1 January 2024. In Switzerland, the introduction and implementation of the global minimum tax requires a constitutional amendment, which will be voted on by the Swiss people on June 18, 2023. If adopted, Switzerland is also expected to introduce the global minimum tax on 1 January 2024.
Transitional Safe Harbour Rules
According to the OECD, for financial years beginning on or before December 31, 2026, it should be possible to simplify the clarification of whether there is an obligation to pay an additional tax. For this purpose, data from country by country reporting is used. These Transitional Safe Harbor Rules are a welcome relief, but only if it is highly probable in advance that the company meets one of the three planned tests in a country. If this is uncertain, the data necessary for the calculation of the global minimum tax must nevertheless be provided in order to enable a detailed calculation of the global minimum tax, if necessary.
GloBE Information Return In December 2022, the OECD published a tax return (GloBE Information Return
), by means of which corporations are to provide the national tax authorities with the information necessary for the collection of the global minimum tax. The systematic structure of the tax return helps to understand the practical calculation of the global minimum tax and the information necessary for it.
Administrative Guidance
The Administrative Guidance published by the OECD in February 2023 clarifies, among other things, that the US minimum tax (Global Intangible Low Taxed Income [GILTI]) is not considered equivalent to the global minimum tax. For corporations based in the USA, this may lead to double taxation of their profits. For companies based in Switzerland, the “Equity Investment Inclusion Election” published in the Administrative Guidance, which makes the participation deduction system compatible with the OECD minimum tax, is encouraging. The Administrative Guidance also contains helpful clarifications on possible implementation issues.
In the following, the developments in the area of Pillar One and Pillar Two from the beginning of 2022 to the end of April 2023 are discussed in detail.

1. Pillar One

Pillar One will result in companies becoming taxable in a state even if they do not have physical facilities such as offices, factories or other premises in that state. It is thus intended to ensure a “fair” taxation of revenues from digital services, such as Netflix or Amazon. However, Pillar One does not only affect the profits from such digital sales. Large corporations will generally have to pay tax on excess profits defined by the OECD in the market countries – exceptions are only provided for companies in the sectors of raw material mining and the regulated financial industry. At least 25% of the profit, which exceeds 10% of the turnover, the amount A, should be taxed regardless of the existence of a physical presence in the states in which the sales are made. [1] In addition, Pillar One also contains a so-called “amount B”, which provides for a simplified arm’s length principle in order to compensate for the routine marketing and sales activities performed locally by the company and to relieve the companies of the burden of proof of arm’s length comparison, which is still necessary today. This amount B is expected to be determined as a percentage of the turnover generated in the market (so-called “Transactional Net Margin Method”). [2] In addition, Pillar One will also include a dispute settlement and prevention mechanism for amount A, so as to prevent double taxation of the same profit by two or more states. Countries that want to introduce Pillar One will probably have to commit to repealing (VAT) taxes on digital sales that have already been introduced. [3]

In 2022, the OECD conducted several public consultations with its member states and other stakeholders on the planned model regulations by means of which Pillar One is to be implemented.

These public consultations concerned the model rules on (i) the determination of the tax nexus and geographical origin of income (nexus and sourcing), (ii) the determination of the tax base (tax base determination), (iii) the scope of taxation, (iv) the definition of an exemption from Pillar One for companies directly involved in the extraction of raw materials (mining, oil and gas) sector (extractive exclusion), (v) the definition of a Regulated Financial Services Exclusion, (vi) the Tax Certainty Aspects, (vii), the determination of the B amount, and (viii) a multilateral agreement planned for mid-2023 by which states are to commit to the introduction of Pillar One under common rules. In addition, in July and October 2022, interim reports were published on the current status of the determination of amount A.

Introduction of Pillar One uncertain

The OECD hopes that enough countries of the Inclusive Framework will agree on the introduction of Pillar One and the aforementioned model regulations as part of a multilateral agreement in mid-2023, so that Pillar One can enter into force on 1 January 2024. It is currently difficult to judge whether this ambitious timetable can be met – the introduction may be postponed to January 1, 2025 or Pillar One may not come at all. It is clear that the longer the introduction of Pillar One drags on, the more states will unilaterally introduce taxes on revenues from digital services. States need more and more funding for state aid for Covid-19, measures to curb inflation and other spending. However, if states unilaterally reintroduce their own taxes on digital sales, this poses a risk of double taxation for companies. In addition, the past has shown that the USA in particular reacts to the introduction of such taxes with countermeasures. Without a coordinated introduction of Pillar One, more trade conflicts are to be expected in the future.

2. Pillar Two

Pillar Two will introduce a global minimum tax of 15%. This minimum tax rate is calculated at the level of the respective states and not at the level of the individual companies (jurisdictional blending). For the calculation of the effective tax rate (Global Anti Base Erosion Effective Tax Rate [GloBE ETR]), the taxes paid by the Group companies and permanent establishments in the respective country and recognized by the OECD (Covered Taxes) are set in relation to the profits generated by these companies in the respective state (GloBE income). In order to take account of the Group’s existing local assets, part of the profit, 5% each of the carrying amount of property, plant and equipment and 15% of personnel expenses, is to be allocated exclusively to the country in which the company is domiciled (substance-based carve-outs). In addition, the calculation of the global minimum tax will be based on taxable profit and taxable net income according to a recognized accounting standard, e.g. IFRS, US GAAP or Swiss GAAP FER, and not on profit according to local legislation, such as Swiss commercial law. If the effective tax rate calculated in this way is less than <>%, a sophisticated set of rules ensures that the difference between the effective tax rate and the minimum tax rate, the top-up tax, is ultimately levied anyway:

If the country in which these companies are domiciled has itself introduced a national top-up tax (Qualified Domestic Minimum Top-up Tax or QDMTT), the country in which it is established has the right to levy the supplementary tax itself;
If the country of domicile has not introduced a national supplementary tax, the country of domicile of the ultimate parent entity (UPE) has the right to levy an international supplementary tax until the minimum tax is reached in relation to these companies (Income Inclusion Rule or IIR);
If the country in which the parent company is domiciled does not levy an international top-up tax, the states in which the underlying parent companies (sub-holdings) are located have the right under the IIR to tax these companies if these states have introduced the global minimum tax;
If no IIR is applicable, e.g. because neither the state of the ultimate parent company nor the states of the underlying intermediate companies levy an IIR, the difference to the minimum tax can be levied by all states in which companies of the group are located and which have introduced the so-called “Under taxed Payment Rule” (UTPR). If more than one country levies the UTPR, it is distributed on the basis of the substance available in those states – personnel costs and property, plant and equipment.
In addition, Pillar Two also contains a so-called “Subject to Tax Rule” (STTR), which is to be laid down in the bilateral double taxation agreements. The STTR is intended to allow certain economically weak states to levy an additional non-recoverable withholding tax on royal, interest or similar payments if these payments are taxed at a statutory tax rate of less than 9% in the recipient state.

3. Pillar Two: Developments in 2022

In 2022, the implementation of the global minimum tax took concrete shape. As recently as December 2021, the OECD published its model regulations for implementation including calculation of the minimum tax (Global Anti-Base Erosion (GloBE) Rules – Pillar Two). [4] In March 2022, the commentary on these model regulations was published, which also contained individual examples of the implementation and calculation of the minimum tax. In April 2022, the OECD held a public consultation event on the approach to implementing the minimum tax. [5] The points discussed at this event finally led to the publication in December 2022 of three important documents that further concretize the implementation of the global minimum taxation: (i) Safe Harbour and Penalty Relief, (ii) Tax Certainty for the GloBE rules and (iii) GloBE Information Return.

Safe Harbour and Penalty Relief [6]

The OECD proposes that for a transitional period, for financial years beginning on or before December 31, 2026, the obligation to pay a top-up tax can be clarified in a simplified way without having to take into account the extensive provisions of Pillar Two. The corporations, which fall under the global minimum tax due to their size, do not have to pay a supplementary tax if certain conditions are met. The data required to check these conditions should be able to be obtained primarily from the Country-by-Country Reporting (CbCR), which these corporations already have to prepare and exchange with the tax administrations. [7] For the purpose of calculating the subsequent tests, these data are to be adjusted only slightly. For example, taxes that may not be taken into account under the GloBE model regulations, e.g. provisions for uncertain tax items, must be deducted from the tax expense reported in the CbCR for a state. However, deferred tax expense is taken into account. In addition, however, states should also be given the right to reject a calculation based on a group’s CbCR if it does not meet certain minimum standards. In addition, there are special rules if there are business units in a country that are not taken into account under the CbCR or the GloBE model regulations (e.g. business units that are to be sold [held for sale]). During the transitional period, if one of the following tests is met, the levying of a supplementary tax is to be waived in the states in which one of the tests has been fulfilled (Transitional CbCR Safe Harbour):

De minimis test:
The turnover in the individual state is less than 10 million euros and the profit made in this state is less than 1 million euros or a loss is made in the state.

Simplified ETR test: The effective tax expenditure in a country determined on the basis of the CbCR after the aforementioned corrections have been made must be at least equal to the transitional rate defined by the OECD (2024: 15%, 2025: 16%, 2026:
17%).

Routine profits test:
The pre-tax profit achieved in a state is equal to or less than the aforementioned substance-based carve-out. The profit received by the group units in the state in this case does not exceed the routine profit. If a loss is realized in a country as a whole, this test is also fulfilled.

Provided that the Group’s CbCR is recognized by the local tax authority, the Transitional CbCR Safe Harbour offers a welcome relief from the extensive documentation requirements in connection with the global minimum taxation – provided that the Group meets one of the aforementioned tests. However, it is only after the end of a financial year that it can be definitively determined whether the Transitional CbCR Safe Harbour will be met. If, at the end of the year, it is determined that this is not the case, or if the local tax authority of a country considers the CbCR to be inadequate, the Group must nevertheless comply with all documentation requirements of the global minimum taxation. The corporations will therefore usually have no choice but to ensure that the data necessary to comply with the extensive documentation regulations is collected and, if necessary, available at the end of the year.

In addition to the Transitional CbCR Safe Harbour, a definitive regulation (Permanent Safe Harbour) or a Simplified Calculations Safe Harbour is also to be introduced. The calculations required for this should not be linked to the data from the CbCR, but should be based on a simplified assessment of profit, turnover and taxes.

Nevertheless, the calculations based on this simplified data should lead to the same result as those under the extensive rules of global minimum taxation. The Simplified Calculations Safe Harbour in turn consists of the aforementioned three tests, of which at least one test must be fulfilled. The effective tax rate to be met for the Simplified ETR test will correspond to the global minimum tax rate, currently 15%. So far, however, the OECD has only defined general principles for simplified measurement without making any concrete proposals. It remains to be seen how big the simplifications will ultimately be. In addition, the Inclusive Framework is currently working on a Qualified Domestic Minimum Top-up Tax (QDMTT) Safe Harbour, which would allow corporations to waive the filing of a GloBE calculation (for the respective state) in addition to the calculation of the national top-up tax. Finally, according to the OECD’s proposal, sanctions should be waived in the transition phase if a group has taken “appropriate measures” to submit a correct GloBE tax return.

Tax Certainty for the GloBE rule [8]

Pillar Two, i.e. the global minimum taxation, is to be implemented by the members of the Inclusive Framework according to common rules, the GloBE Model Rules, i.e. incorporated into the tax laws of the participating states. Each state implements these Model Rules independently in its laws and regulations. Consistent implementation is to be ensured primarily through the common Model Rules, the commentary on them and other mutually agreed rules, such as the aforementioned Transitional CbCR Safe Harbour. However, it is already clear today that the Model Rules are interpreted differently in the states and that profits could therefore be taxed twice, e.g. if one state levies a national supplementary tax and the other state levies an international supplementary tax on the same income because it does not recognise the national supplementary tax of the other state. The OECD would therefore like to introduce transnational conflict resolution mechanisms that avoid such controversies as far as possible (dispute prevention mechanisms) or resolve them retrospectively (dispute resolution mechanisms). On 20 December 2022, the Commission launched a public consultation on the instruments it has proposed. According to the OECD’s proposal, the most important instrument for avoiding conflicts is to be a multilateral review process through which the implementation of the GloBE rules, i.e. the IIR, QDMTT and UTPR, is checked in the states and these states are confirmed as compliant (Qualified Rule Status). When resolving double taxation conflicts, it is proposed, among other things, to introduce a system similar to the mutual agreement procedure known today from the double taxation agreements, where the group can present its case in the event of a taxation conflict and the states concerned must then agree on a joint solution. This does not change the fact that uncertainty will persist for years to come.

GloBE Information Return [9]

At the same time, a public consultation was launched on a possible GloBE tax return, by means of which corporations should provide the national tax authorities with the information necessary for the collection of the global minimum tax. This GloBE tax return must also be submitted if the Transitional Safe Harbours are fulfilled in order to prove the group-wide compliance with the GloBE minimum tax. The GloBE tax return consists of two general chapters (General Information and Corporate Structure) and two chapters dealing with the necessary calculations (ETR Computation & Top-up Tax Computation and Top-up Tax allocation & attribution). The tax return is structured systematically and helps to understand how the effective tax rate is calculated under Pillar Two, the GloBE-ETR and the International Top-Up Tax (IIR). Corporations that are affected by the global minimum taxation can use the GloBE tax return to determine which data they need to calculate the GloBE ETR or to comply with the GloBE documentation requirements.

4. Pillar Two: Developments in 2023

Administrative Guidance

On 2 February 2023, the OECD published the “Agreed Administrative Guidance on the GloBE Model Rules (Pillar Two)” (Administrative Guidance). [10] This document finalizes the GloBE rules. It ensures that global tax authorities have a common understanding of the rules so that they are implemented in a coordinated and administrative manner. In particular, the Administrative Guidance contains information on how the US Minimum Tax (Global Intangible Low Taxed Income [GILTI]) is to be taken into account and on the design of the National Supplementary Tax (QDMTT).

Accordingly, GILTI is not considered a qualifying national supplementary tax. However, in a transitional phase until 2027, it will be classified as a so-called “Blended Controlled Foreign Corporation (CFC) Tax Regime”. Accordingly, if a U.S. company pays a GILTI minimum tax, this tax is not allocated to the U.S. company itself, but to the business units it holds and is taken into account in the calculation of the GloBE ETR of these companies. However, if these business units are domiciled in a country that has introduced a national top-up tax, they are not taken into account for the calculation of this top-up tax (see below).

The Administrative Guidance emphasizes that the design of the national supplementary tax must be consistent with the design of the GloBE rules and should lead to results that are in line with the GloBE rules. However, the rules of the national supplementary tax may be stricter than the GloBE rules. For example, the definition of covered taxes can be narrowed down or it is also permitted to apply the national supplementary tax to groups that do not exceed the turnover limit for GloBE of currently 750 million euros or do not operate internationally. The Administrative Guidance now clarifies that the national supplementary tax is calculated first and before all other taxes, i.e. without taking into account the IIR and any CFC taxes. This is intended to reduce the complexity of calculating the national supplementary tax and to ensure that the application of the national supplementary tax does not lead to a tax burden that is lower than the GloBE-ETR. The OECD assumes that a paid national supplementary tax will always be offset against any CFC tax owed and that there will be no double taxation. It is to be hoped that this will indeed be the case.

The Administrative Guidance also contains clarifications on transitional arrangements, the treatment of gains and losses from different types of income and the application of the GloBE rules to insurance companies. For companies based in Switzerland, the “Equity Investment Inclusion Election”, which is now possible, is of particular interest. By means of this option, a company can opt that investment income that is taxable in its country of residence and value adjustments on participations that are allowed to be deducted for tax purposes are taken into account in the calculation of the GloBE-ETR. This avoids the calculation of a GloBE ETR that is too low (or too high). Through this option, companies domiciled in Switzerland can ensure that they do not suffer any disadvantage in the calculation of the GloBE ETR due to the application of the participation deduction.

The Administrative Guidance will be incorporated into an updated commentary on the Pillar Two Model Rules, which will be published at the end of this year.

Upcoming developments in 2023

finalisation of the Subject to Tax Rule and the multilateral instrument necessary to implement it;
Publication of the OECD standardised XML dataset for global data exchange mentioned in the GloBE Information Return;
Implementation of GloBE governance and a GloBE IT solution as well as reporting, especially in the case of stock exchange listings.
5. Pillar Two: Conclusion of developments in 2022 and 2023

As shown, the implementation of the GloBE minimum tax in 2022 has taken concrete shape. In particular, the GloBE tax return published in December 2022 helps corporations to identify which data must be available in the group at the level of the business units in order to be able to calculate the group’s GloBE effective tax rate per state. The Transitional Safe Harbor Rules are a welcome relief, but only if it is clear in advance with a high degree of probability that the company meets one of the three tests in a country. If this is uncertain, the data necessary for the calculation of the GloBE ETR must nevertheless be provided in order to ensure a detailed calculation of the GloBE ETR if necessary. Last but not least, the Administrative Guidance provides guidance to tax authorities and companies on how to implement the minimum tax. Since it is now clear that GILTI does not qualify as a full-fledged national supplementary tax, corporations based in the USA have the risk that part of their profits will be taxed in another state, since the GILTI is not allocated to the US company itself, but to the business units it holds. It will therefore be interesting to see whether the U.S. will modify GILTI in the next few years to qualify it as a national supplementary tax (QDMTT) under the GloBE rules.

6. Pillar Two: Implementation in the European Union

On 15 December 2022, the Council of Europe adopted the EU Directive on the implementation of Pillar Two, while reaffirming its will to implement Pillar One. [11] This decision was only possible after Hungary had agreed to the implementation of Pillar Two, thus achieving the necessary agreement on tax issues in the EU. The EU member states will now enact the necessary laws at national level so that the global minimum tax can come into force throughout the EU on 1 January 2024.

7. Pillar Two: Implementation in Switzerland

Switzerland was also active in 2022 and is expected to be able to introduce the global minimum tax on 1 January 2024. After the Federal Council decided on 12 January 2022 to implement the minimum tax with a constitutional amendment[12], it launched a consultation on 11 March 2023 on the planned Federal Decree on Special Taxation of Large Companies, by means of which the Constitution is to be amended. [13] In particular, the amendment to the Constitution gives the Federal Council the right to temporarily enact the provisions necessary for the implementation of the global minimum taxation by means of ordinances. These will then apply until the legal provisions approved by the Federal Parliament come into force. Finally, on 23 June 2022, the Federal Council published its dispatch on the Federal Decree on Special Taxation of Large Corporate Groups. [14] The Federal Council proposes to implement Pillar One and Pillar Two. In the implementation of the global minimum tax, he wants to implement all the rules, i.e. also introduce a national supplementary tax (QDMTT) and thus ensure that the additional tax base remains in Switzerland and does not flow into other countries. 75% of the additional tax substitution is to go to the respective cantons of these companies and 25% to the Confederation. On 17 August 2022, the Federal Council launched the consultation on the Ordinance on the Minimum Taxation of Large Groups of Companies (Minimum Taxation Ordinance, MindStV). [15]

Concrete implementation of the global minimum tax in Switzerland (Minimum Taxation Ordinance)

The regulation adopts the model rules developed by the OECD’s inclusive framework by means of a static reference to GloBE Model Rules of 14 December 2021. The ordinance also provides for the introduction of all rules including a Swiss supplementary tax (QDMTT). From a substantive point of view, the ordinance only refers to the Model Rules of 14 December 2021 and declares them to be applicable directly or in relation to the Swiss Supplementary Tax, which is not regulated in the Model Rules. Within Switzerland, the IIR is attributed to the ultimate parent company in Switzerland. The Swiss supplementary tax is allocated to the business units in Switzerland in proportion to the extent to which they caused the undertaxation. In principle, therefore, the additional revenue should benefit the cantons and communities in which the low-taxed business units are based. Only 25% of this additional revenue is to flow to the federal government. More than half of the explanatory report deals with the distribution of the expected additional revenue – although it is generally assumed that these will mainly be temporary additional revenues, as corporations will react to the increased tax level in turn.

We expect that low taxes will become less important for large corporations in the future, so that other location factors such as proximity to customers, the availability of qualified workers or the availability of government subsidies will take on a higher priority in the choice of location. Nevertheless, it should be noted that no minimum tax is levied on the profit allocated to the substance-based carve-out, i.e. on 5% each of the book value of property, plant and equipment and personnel expenses, and that a low effective tax rate can still be attractive for large corporations. Even smaller corporations or companies that do not fall under the global minimum tax continue to benefit from low effective tax rates. However, only time will tell whether the large corporations will continue to settle in Switzerland to the same extent as before or whether they will make their profits here. According to the federal decree, the cantons are to be responsible for levying the global minimum tax under the supervision of the federal government (federalist system). The procedural law on this will not go into consultation until the course of 2023.

Next steps

On 16 December 2022, the Federal Decree on Special Taxation of Large Groups of Companies and the distribution of the expected additional revenue (75% cantons, 25% Confederation) contained therein was finally adopted by the National Council and Council of States. [16] Since the federal decree provides for an amendment to the constitution, it is subject to a mandatory referendum. The Swiss people will therefore vote on 18 June 2023 on the introduction of the global minimum taxation in Switzerland, in particular the introduction of a Swiss supplementary tax. If the people approve the constitutional amendment, Switzerland is expected to introduce the global minimum taxation on 1 January 2024. [17]

Assessment of the implementation of the global minimum tax in Switzerland

The federal implementation of the global minimum tax – the minimum taxation is to be levied by the cantons under the supervision of the federal government – was welcomed by a large majority. [18] However, during the consultation on the Minimum Taxation Ordinance, the business associations economiesuisse and EXPERTsuisse, among others, were critical of the static reference to the model regulations of 14 December 2021 and a dynamic reference was demanded – although this is constitutionally problematic from the Federal Council’s point of view. Only a dynamic reference would ensure that the implementation of the global minimum tax in Switzerland is recognised by the other states of the Inclusive Framework (see above on Tax Certainty for the GloBE Rules). These two associations are also critical of the introduction of the UTPR by Switzerland. By means of the UTPR, profits of business units that do not belong to Switzerland for tax purposes are to be taxed in Switzerland, provided that there is undertaxation abroad and the ultimate parent company or a parent company below it does not levy the supplementary tax in any country of residence. The introduction of a UTPR is considered to be hardly productive and highly complex, and a waiver would also set an example in favor of an attractive and competitive location for the international economy. [19] It is unclear whether Switzerland would still be regarded by the other states as compliant within the meaning of the GloBE model regulations if it were not to introduce the UTPR. In addition, with regard to the calculation of the Swiss Supplementary Tax (QDMTT), which is not regulated in the Model Rules, it is also not clear how taxes from a foreign CFC regime, e.g. the German interest barrier or the US minimum tax (GILTI), are to be treated. The model rules stipulate that these taxes are to be offset against any international supplementary tax. According to EXPERTsuisse, the same should also apply to the Swiss supplementary tax, as otherwise an additional tax burden would arise to the extent of the CFC tax. According to the Administrative Guidance now published in February 2023, it is clear that taxes from a foreign CFC regime may not be taken into account when calculating the Swiss supplementary tax. It is therefore to be hoped that a paid supplementary tax, as stipulated by the OECD, will always be offset against any CFC tax payable on the same profit of another country. Otherwise, there will be increased double taxation of profits. In addition, it also became clear in 2022 that the model rules, in particular those for calculating the effective tax rate, i.e. the GloBE ETR, are partly incompatible with the Swiss tax system. [20] At least here, the now published Administrative Guidance and the “Equity Investment Inclusion Election” introduced with it seem to provide at least some relief. However, assessing the tax impact of the global minimum tax on the taxes payable by Swiss business entities is not easy in many cases. In order to recognize the tax implications of a transaction or booking in a Swiss business entity, an understanding of Swiss tax and commercial law as well as the model rules and recognized accounting standards (including IFRS, US GAAP, Swiss GAAP FER) is required. Even if a company in Switzerland does not fall under the minimum taxation rules, these can have an influence on the structuring of the transaction, e.g. in the case of a takeover of this company by a company that is subject to these minimum taxation rules.

8. Conclusion

We assume that the global minimum tax will be introduced in Switzerland, the member states of the European Union and other countries on 1 January 2024. We therefore recommend that corporations and companies clarify whether they are affected by the global minimum taxation and examine its effects – if this has not already been done. The impact of the global minimum taxation on companies based in Switzerland varies depending on the individual situation. In particular, the differences between the Swiss tax system and the tax system on which the model rules are based, as well as the differences between the accounting under Swiss commercial law that is relevant for Swiss taxes and the accounting according to an international accounting standard, which is decisive for global minimum taxation, can lead to unexpected tax consequences. If a company in Switzerland has a patent box, benefits from additional research and development deductions or benefits from other tax instruments of the last tax reform, it should be noted that these instruments are “harmful” instruments from the point of view of global minimum taxation, as they lead to a reduction in the effective tax rate. If the GloBE ETR falls below the current minimum tax rate of 15% as a result of the use of these instruments, the company may only benefit from taxation below 15% within the framework of the substance-based carve-out. In these cases, it is therefore necessary to examine whether the regimes mentioned still make sense, especially since they also involve a certain amount of effort. The result, in fact, depends on the specific circumstances. It is to be expected that the OECD’s Pillar One and Pillar Two project will not be the last project with which the OECD wants to enforce “fairer” taxation. At present, there is no end in sight to this development, so that it cannot be ruled out that a “fairer” taxation of wealthy individuals could also be sought in the future.

If you have any questions or require further information, please do not hesitate to contact the tax team.

[1] See Fact Sheet Amount AG, Progress Report on Amount A of Pillar One of 11 July 2022, page 3, accessed online on 18 December 2023 at: https://www.oecd.org/tax/beps/oecd-invites-public-input-on-the-progress-report-on-amount-a-of-pillar-one.htm.

[2] Cf. Public Consultation Document: Pillar One – Amount B of 8 December 2022, para. 2, accessed online on 18 January 2023 at: https://www.oecd.org/tax/beps/oecd-invites-public-input-on-the-design-el…one-relating-to-the-simplification-of-transfer-pricing-rules.htm.

[3] See Public Consultation Document: Pillar One – Amount A: Draft Multilateral Convention Provisions on Digital Services Taxes and other Relevant Similar Measures, page 1, accessed online on 18 January 2023 at: https://www.oecd.org/tax/beps/oecd-invites-public-input-on-the-draft-multilateral-convention-provisions-on-digital-services-taxes-and-other-relevant-similar-measures-under-amount-a-of-pillar-one.htm.

[4] Tax Challanges Risisng from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two) of 20 December 2022, accessed online on 18 January 2023 at: https://www.oecd.org/tax/beps/tax-challenges-arising-from-the-digitalisation-of-the-economy-global-anti-base-erosion-model-rules-pillar-two.htm.

[5] Präsentation zum Public Consultation meeting on the implementation of the framework for the global minimum tax, durchgeführt am 25. April 2022, online abgerufen am 18. Januar 2023 unter: https://www.oecd.org/tax/beps/public-consultation-meeting-implementation-framework-global-minimum-tax-25-april-2022.htm.

[6] Vgl. Safe Harbour and Penalty Relief: Global Anti-Base Erosion Rules (Pillar Two), online abgerufen am 19. Januar 2023: https://www.oecd.org/tax/beps/further-progress-on-two-pillar-solution-oecd-releases-consultation-document-on-the-withdrawal-of-digital-service-taxes-and-other-relevant-similar-measures-under-pillar-one-and-an-implementation-package-for-pillar-two.htm.

[7] Beim CbCR handelt es sich um den automatischen Austausch länderbezogener Berichte multinationaler Unternehmen. Sie beinhalten die weltweite Verteilung der Umsätze, der bezahlten Steuern, weiterer Kennzahlen nach Ländern und Angaben über sämtliche Rechtsträger eines multinationalen Konzerns. Dies ermöglicht es den Steuerverwaltungen, Verrechnungspreise und Gewinnverschiebungen zu bewerten (vgl. Website der ESTV, Country-by-Country-Reporting CbCR, online abgerufen am 19.1.2023: https://www.estv.admin.ch/estv/en/home/international-fiscal-law/country-by-country-reporting.html

[8] Public Consultation Document: Pillar Two – Tax Certainty for the GloBE Rules, 20. Dezember 2022, online abgerufen am 20. Januar 2023 unter: https://www.oecd.org/tax/beps/oecd-invites-comments-on-compliance-and-tax-certainty-aspects-of-global-minimum-tax.htm.

[9] Public Consultation Document: Pillar Two – GloBE Information Return, 20. Dezember 2022, online abgerufen am 20. Januar 2023 unter: https://www.oecd.org/tax/beps/oecd-invites-comments-on-compliance-and-tax-certainty-aspects-of-global-minimum-tax.htm.

[10] Tax Challenges Arising from the Digitalisation of the Economy – Administrative Guidance on the Global Anti Base Erosion Model Rules (Pillar Two), online abgerufen am 20. April 2023 auf: https://www.oecd.org/tax/beps/agreed-administrative-guidance-for-the-pillar-two-globe-rules.pdf

[11] Internationale Besteuerung: Rat erzielt Einigung über Mindestbesteuerung der größten Unternehmen, Rat der EU, online abgerufen am 20. Januar 2023 auf: https://www.consilium.europa.eu/de/press/press-releases/2022/12/12/ international-taxation-council-reaches-agreement-on-a-minimum-level-of-taxation-for-largest-corporations/.

[12] Vgl. OECD Mindeststeuer: Umsetzung mit einer Verfassungsänderung, vom 13. Januar 2022, online abgerufen am 20. Januar 2022 unter: https://www.efd.admin.ch/efd/de/home/das-efd/nsb-news_list.msg-id-86783.html.

[13] Vgl. Bundesrat eröffnet Vernehmlassung zur Umsetzung der OECD/G20- Mindestbesteuerung, vom 11. März 2022, online abgerufen am 20. Januar 2023 unter: https://www.efd.admin.ch/efd/de/home/das-efd/nsb-news_list.msg-id-87569.html.

[14] Der Bund regelt die Umsetzung der OECD-Mindeststeuer in der Schweiz, 23. Juni 2022, online abgerufen am 20. Januar 2023 unter: https://www.efd.admin.ch/efd/de/home/das-efd/nsb-news_list.msg-id-89425.html.

[15] OECD/G20-Mindestbesteuerung: Bundesrat eröffnet Vernehmlassung, 18. August 2018, online abgerufen am 20. Januar 2023 unter: https://www.efd.admin.ch/efd/de/home/das-efd/nsb-news_list.msg-id-89967.html.

[16] Federal Decree on Special Taxation of Large Groups of Companies (Implementation of the OECD/G20 Project on Taxation of the Digital Economy), Curia Vista, accessed online on 20 January 2023 at: https://www.parlament.ch/de/ratsbetrieb/suche-curia-vista/geschaeft?AffairId=20220036.

[17] From today’s perspective, the Federal Council expects it to enter into force on 1 January 2024. In its decision to bring the regulations into force, the Federal Council will examine the extent to which implementation has progressed in other countries. If implementation in other countries is delayed, the Federal Council will re-examine the entry into force of the Ordinance (see Explanatory Report on the Minimum Taxation Ordinance, Section 2.2).

[18] Cf. Christoph A. Schaltegger, Andrea Opel, Federalist Implementation of the OECD Minimum Tax (Best Possible Solution by the Federal Council), in: Expert Focus 2022, p. 160 ff.

[19] The non-introduction of the UTPR would particularly benefit companies based in countries that have not introduced the global minimum taxation.

[20] Cf. Daniel Gentsch, Alain Horat, Principles of Calculation of the GloBE Tax Rate (A Swiss view on the calculation principles), in: Expert Focus 2022, p. 132 ff.

By Vischer, Switzerland, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact switzerland@transatlanticlaw.com

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