BDO Corporate Tax News

Switzerland - Global minimum tax rate now in effect

Switzerland’s supplementary tax, which meets the standards for the Pillar Two Qualified Domestic Minimum Top-up Tax (QDMTT) safe harbour, came into force on 1 January 2024, with effect for financial years beginning on or after that date.
On 22 June 2022, the Federal Council submitted a dispatch to Parliament concerning the federal decree on the special taxation of large corporate groups, which would implement the global minimum tax under the OECD/G20 BEPS 2.0 project (Pillar Two). Pillar Two poses significant challenges for Switzerland. Specifically, while the Federal Council wished to introduce the Pillar Two minimum tax rules (even though Switzerland is under no legal or political obligation to do so), the legislation to implement the new rules required an amendment to the Federal Constitution. The result is that the minimum tax has had to be introduced by means of a temporary ordinance until the requisite amendment enters into force. The Parliament approved the Pillar Two project on 16 December 2022, with the referendum required to approve the federal decree (and thus the modification of the Federal Constitution) taking place on 18 June 2023. In the referendum, a significant majority of the population (78.5%) and the cantons approved the federal decree (for prior coverage, see the tax alert dated 23 June 2023).

While, in its 22 December 2023 meeting, the Federal Council decided to begin levying the supplementary tax in Switzerland from 1 January 2024, it has decided initially to refrain from applying the Pillar Two income inclusion (IIR) and undertaxed payment rules (UTPR). It will continue to monitor international developments in this regard and make its decision on implementation at a later date, should this prove necessary to preserve Swiss interests.

The additional tax revenue generated under the new rules will go to Switzerland rather than foreign jurisdictions and the plan is to allocate 75% of the proceeds to the cantons where the companies concerned are located and 25% to the federal government. The aim is to maintain Switzerland's competitiveness, while creating the conditions for preserving jobs and retaining tax revenues in Switzerland. Implementation is to be gradual, SMEs will not be affected by the new rules and tax federalism will be maintained.
QDMTT safe harbour
The Swiss supplementary tax introduced under the Ordinance on the Minimum Taxation of Large Corporate Groups (which is not deductible for Swiss corporate income tax purposes) is considered a QDMTT for Pillar Two purposes and is based on the Pillar Two GloBE Model Rules. Switzerland’s supplementary tax meets the three requirements necessary for a QDMTT to qualify for the QDMTT safe harbour:
  • Accounting standard: The OECD/G20 allows countries to opt to provide a local accounting standard for the QDMTT, subject to certain conditions. The basis for the Swiss supplementary tax is the financial statements prepared in accordance with the revised Swiss GAAP accounting and reporting recommendations (Swiss GAAO FER), which is a recognised accounting standard for the purposes of minimum taxation. However, if some of a group’s business units in Switzerland do not use this standard in preparing their accounts, the accounting standard used by the group’s ultimate parent entity is to be applied. The adoption of this approach is partly attributable to input from the business community during the consultation process.
  • Consistency standard: The Swiss supplementary tax meets this standard because the computations for purposes of the supplementary tax are the same as those under the GloBE model rules.
  • Administrative standard: This standard is intended to ensure that national rules and their application in individual cases are in line with the Pillar Two continuous monitoring requirements. While the “peer review process” (which concerns the rules) and the “monitoring process” (which concerns the application of the rules in individual cases) are still being developed by the OECD/G20, Switzerland meets the administrative standard as it will undergo both processes.

Denis Boivin
BDO in Switzerland