At its last meeting in 2023, the Federal Council decided on Switzerland’s further roadmap for implementing the global minimum tax into domestic law. To prevent erosion of the tax base in favour of other countries, the entry into force date of the Qualifying Domestic Minimum Tax (QDMTT) is set as of 1 January 2024. The implementation of the other elements of the Pillar Two Rules, i.e. Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR) is postponed to a later date.
What happened so far
As part of the OECD’s led BEPS 2.0 project, Switzerland, along with some 140 other countries, has made a commitment to implement the OECD global minimum tax for MNE Groups with consolidated revenue of EUR 750M or more (also referred to Pillar Two or GloBE Rules). This shall ensure that MNE Groups pay at least 15% taxes in each country they operate.
In the public vote on 18 June 2023 the Swiss voters approved the new constitutional provision on the implementation of the BEPS 2.0 project. With this the Federal Council can implement the GloBE Rules through a temporary ordinance.
With the intention to align the Swiss implementation date with the surrounding countries (i.e. EU/UK) and to secure that the additional Top-up Taxes stay in Switzerland, the initial planning has been to implement the QDMTT and the IIR as of 1 January 2024 and the UTPR as of 1 January 2025.
As it has been reported in the press, over the last weeks a majority of the Swiss economy and the politics were requesting the Federal Council to consider postponing the entry into force. The background of this demand was that, worldwide, there are delays in enacting the Pillar Two legislation into local domestic law and important countries – like USA, China, India, Brazil, etc. – are not implementing the global minimum tax for the time being.
What has now been decided
Taking into account the international developments and weighing up the associated advantages and disadvantages for Switzerland, the Federal Council decided on 22 December 2023 to implement in a first step the QDMTT for financial years starting on or after 1 January 2024. With respect to the IIR and the UTPR the Federal Council postponed the implementation for the time being and will decide on this at a later stage.
The Federal Council also published today a respective ordinance for the introduction of Pillar Two in Switzerland. A detailed discussion of the content of the ordinance will be provided at a later stage. Upfront it should be noted that the ordinance allows using the local accounting standard Swiss GAAP FER for the calculation of the QDMTT if certain conditions are met.
How should things continue
Pillar Two becomes reality. In-scope groups should go ahead with their Pillar Two assessment and implementation plan to get ready for the ongoing compliance elements of Pillar Two. In-scope groups that are behind in their preparations must now definitely take action.
Because Switzerland has decided to only start with the QDMTT, in-scope groups need to analyze based on their group structure what this means for the Pillar Two computation and filing position – locally as well as internationally. E.g. Swiss headquartered groups may need to assess which next Intermediate Parent Entity (IPE) in the ownership chain is subject to IIR and becomes liable for Top-up Tax of low-taxed Constituent Entities? What needs to be amended in the Pillar Two computation? What impact will the Swiss decision have on the Pillar Two related tax filing obligations? In order to be prepared, companies should lay the data, technology, and process foundation to gain comfort around their Pillar Two computations within the next few months.
Further, action is required for the year-end discussion with the different stakeholders (e.g. audit committee, auditor, investors, etc.). In-scope groups should bring a point of view on how Pillar Two impacts the group (i.e. what has been done so far to get Pillar Two ready, what knowledge of the respective demands and challenges have been gained, what is the expected impact, what are the next steps).
The deadline for filing the first Swiss QDMTT Return as well as for the GloBE Information Return is 30 June 2026 for a lot of groups and the Swiss tax authorities are geared up to prepare and release an e-filing solution in 2024 for the Swiss QDMTT Return. The specific compliance requirements (QDMTT and IIR) will vary by jurisdiction, depending on how and when the Pillar Two regime is adopted locally. Hence, in-scope groups will have to undertake constant regulation scanning to track a fast-evolving cross-border rule set, identify new data sets to gather, and develop new compliance processes (which may look different in each territory).
Looking for a holiday read
As you head into 2024, make sure you have read this PwC featured content to help you better understand the complex Pillar Two technical issues released from recent OECD guidance and stay on the Pillar Two Nice List!
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