June 20, 2023
Switzerland votes to amend Constitution to allow Pillar Two implementation
With the approval in Switzerland of a constitutional amendment1 in a public vote on 18 June 2023, a majority (78.5%) of Swiss elective citizens as well as all 26 Cantons (result of the popular vote per Canton) cleared the way for the introduction of Pillar One and Pillar Two rules of the OECD/G20 Base Erosion and Profit Shifting (BEPS) 2.0 Project into Swiss domestic law. The constitutional amendment provides the legal basis for the implementation and the competence for the Swiss Parliament to introduce Pillar One and Pillar Two taxes in federal tax bills if deemed adequate. Due to the ambitious timeline set forth by the OECD, the constitutional amendment also contains a transitional provision for Pillar Two that gives authority to the Swiss Federal Council to introduce the Pillar Two rules by way of an ordinance until the Swiss Parliament enacts a federal tax bill.
Key elements of the constitutional amendment
The constitutional amendment creates the legal basis to introduce new federal taxes for large multinational enterprises (MNEs) to achieve taxation in market jurisdictions (Pillar One) as well as minimum taxation (Pillar Two) if deemed adequate. The approval of the public vote and the respective amendment of the Swiss Constitution do not have an immediate effect on the implementation and enactment of Pillar One or Pillar Two in Switzerland.
Key elements of the constitutional amendment include:
Transitional implementation of Pillar Two by ordinance
Parallel to the constitutional amendment, the Swiss Federal Council had already released drafts of the transitional ordinance on Pillar Two for public consultation:
With the public vote Switzerland amended the Constitution and created the legal basis for the Swiss Parliament to work on federal tax bills to implement Pillar One and Pillar Two. There are currently no concrete implementation plans for Pillar One. Regarding Pillar Two, the Swiss Federal Council plans to make use of the transitional provision to implement Pillar Two by way of an ordinance for up to six years. With the second public consultation on the draft ordinance continuing until 14 September 2023, the Swiss Federal Council will likely issue the transitional Pillar Two ordinance in the last quarter of 2023. The ordinance will formally implement Pillar Two in Switzerland.
According to the draft ordinance and the relating commentary, the Swiss Federal Council expects the IIR and QDMTT to enter into force on 1 January 2024 whereas no final decision has been taken yet regarding the implementation of the UTPR (deferred to at least 1 January 2025).
The Swiss Federal Council has the possibility to quickly adjust its ordinance (e.g., to react to any unintended effects or problems that occur in practice or to make changes to improve the attractiveness of Switzerland as a business location). Such updates are not subject to Parliamentarian approval or a public consultation.
The timeframe of up to six years to prepare the permanent tax bill will allow those who draft the bill to draw on experience with the regulation based on the ordinance and will lead to a law already proven over multiple tax periods.
Switzerland seeks to maintain its attractiveness as a business location by minimizing impact of the BEPS 2.0 project for affected companies. Furthermore, following the positive public vote, several Cantons are expected to release information on how the additional revenue from Pillar Two taxes shall be reinvested.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Ltd, Zurich
Ernst & Young Ltd, Geneva
Ernst & Young LLP (United States), Swiss Tax Desk, New York
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor
2 See EY Global Tax Alert, Switzerland opens public consultation on material aspects of the OECD's Pillar Two minimum corporate tax | EY - Global, dated 18 August 2022.
3 See EY Global Tax Alert, Switzerland opens public consultation on procedural aspects of the OECD's Pillar Two minimum corporate tax | EY - Global, dated 25 March 2023.