Large business minimum taxation project

Do you accept the federal decree of 16 December 2022 on a special taxation of large corporate groups?

On 18 June 2023, the Swiss people will vote on the introduction of a minimum tax rate of 15% for multinational companies. This reform, endorsed by some 140 countries, forms part of the OECD/G20 initiative aimed at adapting tax systems to the globalisation and digitalisation of the economy, as well as countering the harmful effects of tax havens. The Federal Council and Parliament wish to introduce such a minimum tax on Swiss and foreign multinationals that conduct part of their business in Switzerland.

The OECD and G20 project

The Organisation for Economic Co-operation and Development (OECD) and the Group of Twenty (G20) major developed and emerging economies wish to adapt the tax rules for large companies to the digitisation and globalisation of the economy. The tax rules for large companies are structured around two main pillars:

• Taxation in the market jurisdiction (Pillar 1): The Pillar 1 rules aim to adapt the international system for corporate taxation by amending the rules on profit allocation and tax liability. They will apply to groups of companies with an annual turnover of at least €20 billion and a profit margin of at least 10%. These groups will now also be taxed in the countries where they sell their products and provide their services. Pillar 1 will not apply to regulated financial services or the extraction of raw materials. The implementation of these rules requires the drafting of an international agreement, but it is not known which countries will sign the agreement or when.
• Minimum tax (Pillar 2): Only the minimum tax is the subject of these votes. The minimum tax will apply solely to large multinational enterprises with a global turnover of at least €750 million per year. The profits of these groups, determined according to internationally harmonised rules, will henceforth be subject to a tax of at least 15% in each country. The Pillar 2 rules are not binding on states, thereby preserving their sovereignty. They are based on the principle that states will exercise their right to tax the relevant corporate groups at the minimum rate and that, failing that, other states may collect the difference between the minimum tax burden of 15% and a lower tax burden.

Implementation of Pillar 2 in Switzerland

The Federal Council and Parliament wish to introduce the minimum tax from 2024 onwards to ensure that the corporate groups concerned pay the additional tax in Switzerland, rather than abroad. To this end, the Confederation will levy a supplementary tax to bridge the gap between the minimum tax rate of 15% and any lower tax rate.

Cantons in which the current tax burden on the businesses concerned is less than 15% will receive 75% of the revenue from the supplementary tax. They will be free to decide how to allocate the revenue collected in this way. Some have already made decisions in this regard and will use these revenues in a targeted manner where the additional tax burden reduces the attractiveness of their business location.

The Confederation will be entitled to 25% of the revenue and will allocate this to national fiscal equalisation and to promoting the country’s attractiveness as a business location.

The Federal Tax Administration estimates that tax revenues from the supplementary tax will be between 1 and 2.5 billion francs in the first year. However, it is difficult to precisely assess the long-term consequences because not all the necessary data is available and some elements of the reform cannot be quantified.

Switzerland's Aims

The Federal Council and Parliament are proposing to adopt rules on the minimum taxation of large corporate groups for the reasons mentioned below:

• Creating a stable general framework: by adapting the tax rate for large corporate groups to OECD/G20 standards, Switzerland will protect them from tax proceedings that could be initiated abroad. Furthermore, tax revenue will return to Switzerland, which will reinvest it in the economy to maintain our attractive economic position.
• Benefits for the whole of Switzerland: Switzerland is home to around 200 multinational companies with their headquarters in Switzerland and 2,000 branches of foreign companies. These account for a very significant share of the Swiss economy, as they generate around 57% of total tax revenue from corporate income tax and employ just over one in four people in Switzerland. The new tax revenue will help to encourage them to remain in Switzerland whilst complying with Pillar 2 standards.
• Rapid and targeted implementation: with the adoption of this federal decree, the project can come into effect as early as 2024 by means of an ordinance, thus bringing our legislation in line with that of other countries such as Japan, Canada or the United Kingdom. Furthermore, this project does not affect current legislation for SMEs or companies operating nationally, thus ensuring legal certainty.
• Preparing our legislative framework: Switzerland must prepare its legislative tools for the globalisation and digitalisation of the economy. Indeed, the 140 member states of the OECD and G20 are preparing other important reforms concerning the taxation of large companies, and Switzerland must adapt accordingly.

Our recommendation: vote YES

As explained, multinationals will now be taxed at a rate of 15%, regardless of which country they are based in. If we reject this tax reform, it would be tantamount to handing tax revenue to foreign states on a silver platter and burdening large companies based in Switzerland with foreign administrative procedures.

In our view, the solution proposed by the Federal Council is the best possible one as it preserves the Swiss tax system and the autonomy of the cantons while complying with international standards.