Swiss proposal to implement OECD pillar 2

Today, the Swiss Federal Council published its proposal how to implement OECD pillar 2 (Global Anti Base-Erosion Rules, GloBE). Although postponed to 2024 (or later?) on the EU level, the Federal Council does obviously not want to risk losing any tax money in favor of other jurisdictions, which may implement the Income Inclusion Rules (IIR) or Undertaxed Payments Rule (UTPR), and therefore suggests to implement a Qualifying Domestic Minimum Top-up Tax (QDMTT) for those multinational companies which fall under the respective GloBE minimum taxation, i.e. which reach the threshold of 750 million EUROS and which do not reach an effective tax rate of 15% (whereby some adjustments for labor costs and other positions will be considered).

The implementation of the QDMTT requires a change in the Swiss Federal Constitution in order to allow a different taxation depending on the amount of revenues of a company, and then, subsequently, the release of a new federal law. Since this all takes time, it is planned that a transition provision will be inserted into the Constitution which authorizes the Federal Council to provisionally issue an ordinance with the specific provision. Everybody who is interested in constitutional law must be fascinated by the mere law making process.

Irrespective of the formalities, implementing the QDMTT seems the apropriate step for Switzerland in the current environment. It will be structured as a federal tax, executed by the cantons, as this is also the case for the direct federal tax, and in which the Swiss Federation will participate at 25% and the cantons at 75%. The new constitutional provision forces the federal government to use its share of 25% in the QDMTT to strengthen the attractiveness of Switzerland as a Business Hub. It is expected, though not mandatory, that the cantons will use their 75% for similar purposes. What exactly 'attractiveness' means, leaves room for wide interpretation.

It is planned, that the amended Constitution and the respective ordinance of the Federal Council shall enter into force as per January 1, 2024, which might be earlier than in the EU, but not necessarily earlier than in other jurisdictions. Switzerland will be ready for GloBE.