Background: Pillar 2
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 (Pillar 2). One of the agreed 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 2 consists of a series of interwoven measures including an Income Inclusion Rule (IIR), an optional Qualified Domestic Top-up Tax (QDMTT) and a Undertaxed Profits Rule (UTPR). The introduction of these measures will significantly change the international tax system.
Domestic implementation in Switzerland
Switzerland, together with 139 other countries, has committed to implement Pillar 2. The domestic implementation of the GloBE Rules in Switzerland required a national referendum to approve the necessary constitutional amendment to introduce Pillar 2 through a temporary ordinance. On 18 June 2023, the constitutional amendment was approved by referendum, allowing for the introduction of top-up taxation in the form of an IIR, a UTPR as well as a QDMTT. In the coming years, Swiss parliament will replace the ordinance with a federal law.
The Swiss government previously communicated that they intend to implement the IIR and QDMTT as of 1 January 2024. This communication was primarily guided by the European Union’s implementation process, where the Pillar 2 directive requires Member States to implement the rules by 31 December 2023.
The implementation date for the QDMTT remains 1 January 2024. The QDMTT to 15% will be applied for in-scope MNEs. The temporary Pillar 2 ordinance includes the GloBE Rules via strict reference to the rules, with the rules applicable to the QDMTT implemented by way of reference. The Swiss Federal Council thus expects that the Swiss QDMTT will be in line with the GloBE Rules due to the approach by reference.
Since the QDMTT under Pillar 2 is expected to impact Swiss business operations, particularly in areas such as the participation reduction and deferred taxes, it is important to assess the impact of the GloBE Rules.
Should you have any questions in the meantime, please contact your regular trusted contact at Loyens & Loeff.