Global minimum tax in Switzerland – the Swiss voters clearly say yes

Dominik Birrer
Partner Tax, PwC Switzerland

Katya Federspiel Alig
Managing Director Tax, PwC Switzerland

Rolf Röllin
Partner - Corporate Tax, PwC Switzerland

With a majority of roughly 78%, Swiss voters approved the new constitutional provision on the implementation of the OECD/G20 project on the taxation of large corporate groups (BEPS 2.0 project) in the public vote on 18 June 2023. This positive outcome enables Switzerland to continue with the work on the global minimum tax implementation plan.

Background

As part of the OECD’s led BEPS 2.0 project, Switzerland, along with some 140 other countries, has made a commitment to implement a minimum tax regime for multinational group of companies with consolidated revenue of EUR 750 million or more (also referred to Pillar Two or GloBE Rules). This agreement shall ensure that such multinational groups pay at least 15% taxes in each country they operate.

Key elements of Swiss implementation

With the clear positive vote, the Federal Council can now timely implement the Pillar Two Rules into domestic law through a temporary ordinance¹ that could be effective as per 1 January 2024².

Switzerland is set to introduce a supplementary tax in the form of a (Qualified) Domestic Minimum Top-up Tax (QDMTT) aimed at multinational groups of companies that fail to meet the 15% minimum taxation in Switzerland. This additional tax will generate revenue for Switzerland and help protect companies from facing further tax obligations and legal proceedings abroad. 75% of the tax revenues generated from the Top-up Tax will be allocated to the cantons, with due consideration given to the communes. The remaining 25% of the tax revenues will be received by the Confederation. This enables the Confederation and the impacted cantons to further invest in Switzerland's attractiveness as a favorable business destination (e.g., by means of introducing Qualified Refundable Tax Credits).

To ensure compliance with OECD standards, Switzerland will also implement an Income Inclusion Rule (IIR) and potentially also an Undertaxed Payments Rule (UTPR) to tax foreign profits of multinational companies that have not been subject to a 15% minimum tax rate based on Pillar Two Rules in their country.

Are you Pillar Two ready?

With this vote result, Pillar Two will become reality very soon for groups operating in Switzerland and it is expected that many other countries will also enact Pillar Two legislation in local domestic laws over the next months. The impact on the end-to-end operations of in-scope multinational groups is monumental. Its impact goes beyond the tax function, as affected groups have to address various questions and challenges throughout the organization. Besides understanding the complex Pillar Two Rules, this encompasses evaluating the additional data and reporting/compliance obligations, assessing the capabilities of the existing technology infrastructure, establishing new processes and controls, preparing and training personnel, and effectively managing stakeholder expectations.

A more detailed overview about BEPS 2.0 and what it means for your business can be found here. At PwC we’re geared up to helping you evaluate how Pillar Two might impact your organization and assessing what’s required for readiness. It is now time to prepare for these upcoming challenges!

_{¹ On 24 May 2023, the Swiss Federal Council released the second draft ordinance governing the implementation of Pillar Two. The ordinance is open for consultation until 14 September 2023 (more details can be found here).}

_{² The Federal Council intends to align the Swiss implementation date with the EU. Currently, it is expected that QDMTT and IIR would be implemented from 1 January 2024 and UTPR may follow from 1 January 2025.}