Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

August 18, 2022
2022-5784

Switzerland opens public consultation on material aspects of the OECD’s Pillar Two minimum corporate tax

  • The Swiss Federal Council has opened the public consultation on the ordinance that will temporarily regulate the material aspects of the OECD’s Pillar Two minimum corporate tax in Switzerland during a transition phase.

  • The public consultation runs until 17 November 2022 and the ordinance is intended to apply from 1 January 2024.

  • This Alert outlines the key provisions of the ordinance, which is aligned with the OECD GloBE Model Rules.

Executive summary

On 17 August 2022, the Swiss Federal Council opened the public consultation on the ordinance that will temporarily regulate the material aspects of the Organisation for Economic Co-operation and Development’s (OECD) Pillar Two minimum corporate tax in Switzerland during a transition phase.

The ordinance includes a Swiss top-up tax (qualified domestic minimum top-up, “QDMTT”) and an international top-up tax (income inclusion rule, “IIR,” and undertaxed payments rule, “UTPR”) in line with the Global Anti-Base Erosion (GloBE) Model Rules. The draft wording of the ordinance mainly refers to the GloBE Model Rules for the determination of the respective taxes and includes only very limited additional Swiss regulations.

All interested parties can comment on the proposed ordinance until 17 November 2022. The ordinance is intended to apply from 1 January 2024.

Detailed discussion

The basis of this ordinance is the constitutional amendment, which is currently being debated in the Swiss Parliament and will be subject to a public vote in June 2023 (for background, see EY Global Tax Alert, Swiss Federal Council releases dispatch on constitutional amendment for BEPS 2.0 implementation in Switzerland, dated 24 June 2022). The transitional provision included in the constitutional amendment authorizes the Swiss Federal Council to regulate the global minimum taxation of large corporate groups in Switzerland by way of a temporary ordinance until the permanent tax bill has been enacted through the regular legislative process and without time pressure. This phased approach is taken to ensure a timely implementation of Pillar Two in Switzerland.

As expected from the constitutional amendment and all previous communications, the ordinance includes provisions for a Swiss top-up tax (QDMTT) and an international top-up tax (IIR and UTPR).

  • The Swiss QDMTT applies to Swiss constituent entities of multinational groups with an annual global turnover of €750m. If the jurisdiction of the ultimate parent entity applies a lower threshold than €750m, Swiss constituent entities are also subject to the Swiss QDMTT. The Swiss QDMTT is levied irrespective of the jurisdiction of the ultimate parent entity.
  • The IIR applies to non-Swiss constituent entities of multinational groups with annual turnover of €750m if the ultimate parent entity is in Switzerland or another constituent entity is in Switzerland for which no IIR applies.
  • The UTPR applies to non-Swiss constituent entities with a non-Swiss ultimate parent entity if a constituent entity is in Switzerland and the non-Swiss constituent entity is not subject to a foreign IIR.

The draft wording of the ordinance does not include any detailed regulations for the implementation of the respective taxes in Switzerland. Instead, the ordinance refers to the GloBE Model Rules dated 14 December 2021 and declares them directly applicable in Switzerland. It notes that the rules are to be interpreted in line with the OECD Commentary to the GloBE Model Rules and other related guidance (e.g., the Implementation Framework). A potential new version of the GloBE Model Rules, the Commentary and/or the Implementation Framework would not automatically apply in Switzerland but would rather need to be analyzed from a Swiss perspective to determine the impact and the potential update of the Swiss ordinance, if needed.

With this approach Switzerland wants to ensure full international compatibility. The Swiss Federal Council notes that the GloBE Model Rules are rather detailed and specific in many areas, therefore leaving Switzerland little room to modify. It is deemed to be crucial that the Swiss implementation fully complies with the GloBE Model Rules while also taking into account the modalities of the implementation in other jurisdictions, such as the European Union (EU) Member States and the United States. Some items of the implementation in Switzerland will therefore remain unclear until at least the end of 2022, when the OECD is expected to release the Implementation Framework.

The ordinance further clarifies that the Swiss QDMTT is allocated between Swiss constituent entities based on the top-up tax that would result if calculated separately for every Swiss constituent entity. The UTPR is allocated between Swiss constituent entities based on the same GloBE Model Rules that apply for the international allocation between different jurisdictions.

The draft ordinance does not include new information with regard to the reinvestment of the additional tax revenue to strengthen the attractiveness of Switzerland as a business location. It is still foreseen that 25% of the additional tax revenue will be allocated to the federation and that the remaining 75% will be designated for the cantons.

Outlook

All interested parties can comment on the proposed draft ordinance until 17 November 2022. The Swiss Federal Council will release the final version of the ordinance after the formal enactment of the constitutional amendment. The final version may deviate from the draft ordinance considering any comments made during the consultation procedure as well as any further developments in the Pillar Two project.

The draft ordinance does not include a fixed date for entry into force. Based on the commentary released together with the draft ordinance, the Swiss Federal Council still expects implementation as of 1 January 2024. Different from other jurisdictions Switzerland currently plans to implement all aspects of the ordinance at the same time, which would also include the UTPR as of 2024. This is in line with the timing always communicated by Switzerland (i.e., IIR implementation one year later than contemplated by the GloBE Model Rules; UTPR implementation in line with GloBE Model Rules). Neither the draft ordinance nor the commentary explicitly comment on the expected delays in other jurisdictions (e.g., IIR as of 2024 and UTPR as of 2025 in the EU and the United Kingdom). However, it is noted that the developments and potential delays in other jurisdictions would be considered when making the final decision on the entry into force of the ordinance in Switzerland.

The Swiss Federal Council is expected to publish a second ordinance regulating the procedural aspects. A public consultation for that second ordinance is expected later this year after the OECD releases its Agreed Administrative Guidance. Both ordinances will apply for a transition period until the Swiss Parliament enacts the permanent tax bill that will replace the ordinances.

_________________________________________

For additional information with respect to this Alert, please contact the following:

Ernst & Young Ltd, Zurich

Ernst & Young Ltd, Geneva

Ernst & Young Ltd, Zug

Ernst & Young Ltd, St. Gallen

Ernst & Young LLP (United States), Swiss Tax Desk, New York

Ernst & Young LLP (United States), Swiss Tax Desk, San Francisco

 
 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

Copyright © 2024, Ernst & Young LLP.

 

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

 

Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

 

"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

 

Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct Opt out of all email from EY Global Limited.

 


Cookie Settings

This site uses cookies to provide you with a personalized browsing experience and allows us to understand more about you. More information on the cookies we use can be found here. By clicking 'Yes, I accept' you agree and consent to our use of cookies. More information on what these cookies are and how we use them, including how you can manage them, is outlined in our Privacy Notice. Please note that your decision to decline the use of cookies is limited to this site only, and not in relation to other EY sites or ey.com. Please refer to the privacy notice/policy on these sites for more information.


Yes, I accept         Find out more