Background: Pillar Two
In December 2021, the members of the OECD’s Inclusive Framework on Base Erosion and Profit Shifting reached a political agreement on reforms to the international tax system. One of the agreed Pillar Two measures was the introduction of top-up tax rules to ensure a minimum effective taxation of 15% in each jurisdiction where MNE groups with a global turnover of at least EUR 750 million have a taxable presence (GloBE Rules). Pillar Two consists of a series of interwoven measures including an Income Inclusion Rule (IIR), an optional Qualified Domestic Top-up Tax (QDMTT) and an Undertaxed Profits Rule (UTPR).
Domestic implementation in Switzerland
Switzerland, together with 137 other countries, has committed to implement Pillar Two. This required a referendum to provide for the required constitutional amendment so that Pillar Two can be introduced by way of a temporary ordinance. The now approved vote will see Switzerland introduce top-up taxation in the form of an IIR, a UTPR as well as a QDMTT. Swiss parliament will subsequently enact a federal law to replace the ordinance in the coming years. Separately, the now adopted constitutional amendment also allows for a later implementation of the OECD’s Pillar One project.
The Swiss implementation package will directly refer to the OECD Model Rules to ensure that the Swiss regulations are as consistent as possible with the implementation of Pillar Two by other jurisdictions. From a procedural perspective, it is expected that a so-called “One-Stop-Shop” will be implemented, under which only one canton assesses and levies top-up tax to keep the administrative burden for MNEs to a minimum.
The Federal Council and Parliament will decide on the details and shape of specific measures to be taken in view of the additional tax revenue. It is expected that cantons with relevant additional tax revenue stemming from the top-up tax will introduce measures to uphold their local attractiveness.
Pillar Two is expected to impact Swiss business operations notably in areas such as the participation reduction and deferred taxes.
The current expected implementation date for the IIR and QDMTT is 1 January 2024, while the expected implementation for the UTPR is 1 January 2025.
Before making a final decision on the details and exact timing of the Swiss implementation, the Federal Council will examine the implementation status in other countries. In the Federal Council’s view, the implementation timing should align with that of the EU.
We are constantly monitoring the Swiss implementation process and will keep you updated in case of any relevant developments. Furthermore, our Pillar Two team is available to support you in analysing and modelling the impact of the Pillar Two rules on your group, assisting you in setting up compliance processes and exploring ways to mitigate increased taxation and complexity.
Should you have any questions in the meantime, please contact a member of our Pillar Two team or your regular trusted contact at Loyens & Loeff.