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Current tax law is based on an analog economy. As a consequence, digitization demands a tax law adjustment. With this in mind, the OECD has introduced regulations divided into two pillars. Together, the two pillars are known as the Global Anti-Base Erosion Rules (GloBE). On 20 December 2021, a further step towards the international adaption of corporate taxation was taken with the publication of the Model Rules for Pillar 2. A minimum taxation of 15% was introduced on an international level, as early as 2023-2024. Although its implementation is not mandatory for Switzerland, it significantly contributes to Switzerland’s attractiveness as a location for businesses. If you have any questions regarding corporate tax law, please do not hesitate to contact one of our tax lawyers.
The scope of application encompasses multinational groups of companies that reach a collective turnover of 750 million euros. The Swiss legislator maintains that this does not disadvantage SMEs and organizations that are only active in Switzerland. Thus, according to the draft federal decree on minimum taxation, corporate taxation will remain at the current level for said target group. For multinational groups of companies that fall within the scope, an additional supplementary tax will be levied. Furthermore, tax federalism will remain upright in Switzerland. The profit tax will continue to be levied by the federal government and the cantons, while the collection of the supplementary tax will be collected by the cantons.
The new regulation will result in significant additional expense for targeted companies. The calculation of the global minimum tax necessitates the reporting of the GloBE result, a defined assessment basis of the OECD. Companies must implement an additional parallel accounting system in accordance with the GloBE standards in order to submit a report of this nature. Parallel accounts must also be kept for the final tax return.
The profit tax rate for Swiss companies ranges between 12% and 21%, with the average being below 15%. The GloBE result will be broader in some cases, amplifying this range. This in turn, means that the tax rate, which is decisive for the OECD, is comparatively even lower.
A further complication for affected corporations is the national discrepancies in the type and timing of implementation. The Income Inclusion Rule (IIR) is to be introduced as early as 2023. This is one of the two main pillars of the OECD’s Model Rules. When the IIR enters into force, a country will obtain the right to tax profits of subsidiaries held abroad that have been taxed at too low a rate. The second pillar, the Undertaxed Payments Rule (UTPR), is to be implemented one year later, in 2024. This serves as a safeguard for the IIR. If the country of the parent company does not introduce the IIR, the countries of the subsidiaries can ensure taxation on a subsidiary basis, by denying deductions.
The taxation rules will not come into force in Switzerland until 1 January 2024. For parent companies in Switzerland, there are no immediate problems. Even if the states of the subsidiaries introduce IIR as of 2023, as the UTPR will not come into effect until 2024. This does not apply for parent companies abroad. If Switzerland does not introduce a transitional solution for 2023, other state can freely levy additional taxes on the subsidiaries, taxed too low in the interim.
The introduction of a minimum taxation will have a significant and long-term impact on international tax law. Currently, many questions pertaining to the legal consequences remain unanswered since its implementation in the individual countries has not yet been finally clarified. If you have any questions regarding the current tax situation of your company, our tax lawyers can support and clarify how the legal landscape is unfolding.