Pillar 2: Second draft ordinance

A. Main aspects and observations

One-stop shop: after having discussed with different stakeholders (incl. tax authorities and companies), the Federal Council proposes to levy the top-up tax with a “one-stop shop” concept in Switzerland. In other words: only one canton will levy the top-up tax and distribute the respective funds to the Federation / other cantons. As such, a taxpayer will file the Pillar 2 tax returns (QDMTT return, IIR return and UTPR return) with one canton only; further developments in terms of the GloBE Information Return will be monitored and would be built into the ordinance once available. The relevant Swiss filing entity will be the top-tier company in Switzerland. In case no such top-tier company exists, the economically most relevant Swiss company has the respective filing obligation (relevance being measured by reference to the highest average net income throughout the last three tax periods or the highest average equity during the same period).

The Pillar 2 tax returns are to be filed within 18 months after a Group’s year-end (for the first year it is subject to the Pillar 2 rules) respectively within 15 months after a Group’s year-end in following years. The top-up tax amounts will become due at the same dates (i.e., alignment between filing and payment deadlines).

Declaration / assessment procedure: the relevant Swiss filing entity will need to file the Pillar 2 tax returns by submitting a self-declaration, which is then reviewed and assessed by the One-stop shop Canton. The declaration will be done electronically on a portal designed specifically for Pillar 2 purposes. The respective portal shall be available from 2025.

Timing of implementation: the Federal Council intends to align the Swiss implementation date with the EU. As such, the current expectation is that the QDMTT and the IIR would be implemented from January 1, 2024, while the UTPR may follow from January 1, 2025. However, the Federal Council will continue to monitor the international developments as far as implementation dates in other countries are concerned and would have the option to adjust the Swiss implementation dates accordingly. During the consultation period for the first part of the ordinance, there have been suggestions not to introduce the UTPR at all. The explanatory report to the 2^nd draft ordinance refers to these propositions and seems to suggest that this might be a possibility as well.

B. Further considerations

The Federal Council took the opportunity to comment on a few aspects of the QDMTT, which are a welcome clarification:

It is to be expected that Switzerland will introduce a QDMTT rather than a DMTT (although this will be subject to further review and be depending on whether other countries – particularly the US – will grant a credit for a QDMTT levied in Switzerland);
Switzerland will accept the QDMTT computation to be based on any Authorised Financial Accounting Standard used for the Group’s Consolidated Financial Statements, i.e., it will not narrow it to Swiss standards;
The Substance-based income exclusion shall be allowed for QDMTT purposes as well;
Permanent differences: Switzerland will not opt to make the QDMTT more restrictive than the GloBE Rules (e.g., with respect to fines and penalties) but rather wants to align the respective bases to ensure consistency between these two systems;
The GloBE CbCR Safe Harbours will be relevant for QDMTT purposes, too.

While only the relevant Swiss filing entity will have a respective filing obligation, the ordinance makes clear that there is a joint liability for all other Swiss Constituent Entities;

The ordinance states that unlike regular corporate income tax, any Top-up tax paid under the Pillar 2 framework will not be considered tax deductible business expenses;

In line with OECD Guidance, the ordinance foresees that during a transition period of three years, no penalties or sanctions should apply in connection with filing the Pillar 2 tax returns where an MNE has taken “reasonable measures” to ensure the correct application of the GloBE Rules (i.e., negligent infringement of administrative duties or tax evasion will not be sanctioned);

Appeal procedure: in case a relevant Swiss filing entity disagrees with the assessment received from the One-stop shop Canton, it can file an objection, which is then handled by the respective cantonal tax authorities. The following appeal stages are the Swiss Federal Administrative Court and finally the Swiss Supreme Court. As such, no cantonal court will be involved in the overall appeal process when it comes to Pillar 2-related questions.