Switzerland Agrees to Establish 15% Minimum Tax Rate to Implement the OECD Tax Reform

The Swiss Federal Council has decided in its session of January 12, 2022, to implement in Switzerland the minimum tax rate for large multinational companies from 2024 as stipulated last year by the OECD and G20 member states under the OECD/G20 Inclusive Framework on BEPS. A group of 137 countries set the minimum global tax rate of 15% for certain multinational enterprises (MNEs) as part of the global tax reform.

Switzerland plans to introduce these rules through a constitutional amendment, which will require a popular vote expected to take place in June 2023. After that, a new constitutional amendment would also face a referendum, but the temporary ordinance would allow Switzerland to join the new global regime in the meantime.

On that basis, the Swiss Government will issue a temporary ordinance to ensure that the minimum tax rate of 15% for enterprises with a turnover of more than EUR 750 million comes into force on January 1, 2024.

Under the developed by the OECD global consensus-based “Pillar two“ solution, the tax reforms will result from two broad work streams: a partial reallocation of taxing rights (Pillar One) and minimum effective taxation of profits of MNEs (Pillar Two).

Pillar One aims to capture the largest and most profitable MNEs by the implementation of the international rules on apportioning among countries the taxation of its corporate profits to reflect the changing nature of business models, including the ability of companies to conduct business without a physical presence.

Pillar Two stipulates that MNEs with a turnover of more than EUR 750 million are subject to a minimum tax rate of at least 15% in each jurisdiction. If a country does not tax the respective domestic group companies at that rate, other countries tax the undertaxed income.

The Swiss Government has approved the following vital requirements regarding the implementation of global tax reform in Switzerland:
-      Ensuring the minimum tax rate for multinational companies with an annual turnover of at least EUR 750 million.
-      Collection of additional taxes by the cantons. The additional tax revenue goes to the cantons.
-      The additional tax revenue is subject to the general rules of national financial equalization.

According to the data announced by Finance Minister Ueli Maurer, the new minimum tax rate would be applied to around 200 Swiss companies and approx. 2,000 Swiss subsidiaries of overseas groups. The Federal Council maintains that nothing will change for companies focused exclusively on domestic small, and medium-sized enterprises.

Incorporating a minimum tax rate into Swiss law will spare additional tax proceedings abroad for large companies. Switzerland should also not forego any tax revenues that it is entitled to. Furthermore, the cantons will have sovereignty over location measures to ensure that Switzerland remains an attractive business location.

Due to the recent publication of the Pillar Two model rules by the Federal Council and the ongoing process at the OECD level, a detailed impact assessment is not possible yet. However, the Federal Council is working closely with the cantons, municipalities and other interested parties to ensure the timely implementation of the new global minimum tax rules in Switzerland and at the same time to maintain the attractiveness of Switzerland as a business location. Nevertheless, several working groups and advisory bodies have already been set up for this purpose.