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Introduction in Switzerland

In the early summer of 2023, the Swiss electorate instructed the Federal Council to implement the OECD's Global Anti-Base Erosion Model Rules - GloBE for short, or better known as Pillar 2. Pillar 2 provides for multinational corporations with a consolidated annual turnover of at least EUR 750 million to be taxed at a minimum rate of 15% in each country in which they operate. As a result, the Federal Council introduced a national supplementary tax - also known as the Qualifying Domestic Minimum Top-up Tax (QDMTT) - on 1 January 2024. It has postponed the decision on the introduction of the international supplementary tax in the form of the Income Inclusion Rule (IIR) or the Undertaxed Payment Rule (UTPR) until further notice.

New episode in the location competition

With the entry into force of the QDMTT, Switzerland, like several other of the 140 or so OECD member states (such as the EU member states in particular), has committed to the introduction of the global minimum tax. On the one hand, the Federal Council wants to preserve significant tax revenues for Switzerland. On the other hand, by not introducing the IRR or UTPR at present, it is ensuring that Swiss companies are not placed at a disadvantage in international competition. And finally, it follows a principle of Swiss profit tax law, according to which Switzerland does not tax the profits of foreign subsidiaries. However, the implementation of the QDMTT - and thus the taxation of profits at a rate of at least 15% - presents a number of cantons with the difficult task of significantly relativising a key locational advantage. In response to this, we have observed that several cantons are actively considering the possible introduction of qualified tax credits or subsidies. In this respect, we expect a shift - both nationally and internationally - from tax competition to subsidy competition.

Clarify application level and jurisdiction

What now? This question is at the top of the to-do list for the tax department and many CFOs of affected companies based in Switzerland. Firstly, they should identify the national implementation status in the countries of their subsidiaries. This means defining for which company in which country or countries the GloBE rules apply. For example, if a group has intermediate holding companies - so-called Intermediate Parent Entities - in countries with IIR, the IIR rule may apply here.

Save time with Safe Harbours

As part of a transitional phase, the OECD has launched the Transitional Safe Harbour Tests, which are based on country-by-country reporting (CbCR). If a group fulfils at least one of three of these tests in a country for the reporting years 2024 to 2026, it does not have to calculate GloBE in detail there. Currently, this often applies to Swiss groups for many countries in which they are present. But beware: the breather is short. The three relevant tests are as follows and are to be calculated per jurisdiction:

1. De minimis: Sales of less than EUR 10 million and a pre-tax profit of less than EUR 1 million.

2. Effective tax rate: If the effective tax burden (ratio of tax expense to pre-tax profit) is at least 15 % (for 2024), 16 % (for 2025) or 17 % (for 2026), this test is met.

3. Routine profit: If the pre-tax profit realised by group entities according to CbCR does not exceed the substance allowance according to the OECD model regulations, relief also applies. If a group therefore reports a loss in a country, this test is fulfilled per se.

Fulfil data requirements

If a group in a specific jurisdiction cannot benefit from the aforementioned safe harbour rule, it is faced with the challenge of providing the data required for a detailed GloBE calculation. An average group is likely to need around 120 to 170 of the 250 data points provided for each national company. It is estimated that companies can currently collect between 40 % and 60 % from their existing systems. In practice, however, the problem often arises that certain data points are not available at all, are not aggregated appropriately or are insufficiently granular. Certain data points also have to be collected manually, which is time-consuming, or are difficult to quantify. As a result, those responsible must determine what data they need, who collects it and where, who transmits it and who is ultimately responsible for it. This fundamentally changes the reporting processes with corresponding responsibilities and competences.

Driving forward automation

In response to the increased data requirements, the market is currently being flooded with GloBE software solutions. Such applications support either the calculation or the collection of data. The latter is still done manually in most companies, which is time-consuming and error-prone. Those responsible will soon have to concretise technology-supported solutions in order to reduce manual resources, susceptibility to errors and therefore costs. As a result, one or two postponed IT investments are likely to reappear on the budgeting agenda or be prioritised.

Consistently updating the tax rationale

Groups should know how the Swiss QDMTT declaration affects their GloBE information return and which documents must be submitted where and by when. Several new tax declarations will be added to the statutory annual report and the one in accordance with internationally recognised accounting standards, and the implementation of the rules in Switzerland and abroad will potentially also have an impact on the tax provision item and the notes to the tax information in the annual financial statements. The tax narrative is therefore told from a new perspective. The storyline should remain straightforward and deviations should be explained conclusively. Those responsible must prepare for such discussions in good time and scrutinise their tax narrative and, if necessary, have it reviewed by teams of experts.

Conclusion

Determining the tax base for GloBE is highly complex and is imminent. It entails substantial additional work for the companies concerned. This is why we recommend taking the plunge: it begins with the evaluation of the group parent company relevant for Pillar 2 and the jurisdictions in which a group with holding or intermediate holding companies is domiciled. Safe harbour exemptions may apply. However, the full GloBE programme will be required from the 2027 reporting year. The biggest hurdle is probably the provision of the required data. Those responsible must create the corresponding technological and procedural foundations, which in turn requires a far-reaching reform of digitalisation, competencies and responsibilities in the reporting processes. And finally, companies should look at their tax narrative from a holistic perspective, as it will become more transparent for tax administrations in the future.