Switzerland looks to remain competitive under global minimal taxation

On July 1 2021, the OECD agreed on the general outline of an inclusive framework with regards to the future taxation of multinational enterprises. Switzerland, home of many multinational companies and one of the most competitive countries for attracting multinationals, supports the OECD framework.

Switzerland much prefers a multilateral solution on a global scale in this question, to a myriad of uncoordinated attempts by individual countries to tackle minimum taxation with unilateral legislation. A global solution on an OECD level will provide much needed certainty and stability, a key element to enable businesses to plan, innovate and grow.

While only a handful of Swiss based multinationals will likely be affected by OECD pillar one (taxation of large multinationals where the income is generated), OECD pillar two (minimum taxation of 15%) will impact Swiss subsidiaries of foreign multinationals on a broader scale.

A large number of Swiss cantons currently offer headline tax rates (effective federal/cantonal/communal tax rates) below 15%, some of which are below 12%. Indeed, inter-cantonal tax competition within Switzerland, where cantons compete for taxpayers with hard factors, such as low tax rates, and even more so with soft factors (applying a more business friendly, more reasonable approach on all questions of taxation) is the key element that ensures the most competitive tax environment possible.

Although a minimum tax of 15% marginally narrows the differences in tax rates, the competitive spirit will remain that ensures Switzerland will continue to offer a very attractive tax environment for multinationals and keep its competitive edge internationally.

The OECD and G20 members have committed themselves to a swift implementation of the inclusive framework with a targeted ratification and incorporation into domestic legislation by 2023. Anticipating the current momentum of the global commitment, the Swiss federal government has been assessing domestic legislation since late 2019 and intends to publish its legislative agenda and domestic implementation plan in early 2022, once more technical details have emerged from the OECD working groups and after consultation with cantons, political parties and interest groups.

Based on current discussions, Switzerland will introduce income inclusion rules to provide its domestic ultimate parent entities (UPE) with an efficient administrative procedure for compliance with the pillar two framework. The government is further reviewing its possibilities within the inclusive framework and accepted global standards to compensate businesses for the increased income tax burden from the 15% minimum tax. This includes measures such as the planned abolishment of the 1% capital issuance tax on equity contributions, an example of likely many to follow of how Switzerland will ensure to remain a very enticing jurisdiction for multinational companies.

René Zulauf

Partner, Deloitte Switzerland

E: rzulauf@deloitte.ch

Manuel Angehrn

Senior Manager, Deloitte Switzerland

E: maangehrn@deloitte.ch