SWITZERLAND Law and Practice Contributed by: René Matteotti, Monika Bieri, Daniel Schönenberger and Caterina Colling-Russo, Tax Partner AG
It is not yet clear whether/how Switzerland will implement Amount B. Pillar Two On 18 June 2023, the Swiss electorate voted on the implementation of the OECD/G20 minimum taxation (and the creation of the constitutional basis for the introduction of Pillar One), with the proposal being approved by 78.5%. The refer - endum was necessary as the introduction of the OECD/G20 minimum taxation required an amendment to the Federal Constitution. This was because the OECD/G20 minimum taxa - tion would have contradicted the constitutional principle of equal treatment of taxpayers. With the approval of the constitutional amendment, which came into force on 1 January 2024, the Federal Council enacted the ordinance on mini - mum taxation at federal level on the same day. At the same time, some cantons also decided to increase tax rates for companies. It should be noted, however, that the mini - mum taxation in Switzerland was limited to the national supplementary tax (qualified domestic minimum top-up tax, of QDMTT) for tax years starting from 1 January 2024. As for tax years starting as from 1 January 2025, Switzerland decided to also introduce the income inclusion rule (IIR). The Federal Council has refrained from applying the undertaxed profit rule (UTPR) for the time being. The introduction of the minimum taxation results in a tax increase for relevant cor - porate groups, provided the GloBE effective tax rate (ETR) in Switzerland is below 15% (and no corresponding substance-based income exclu - sion applies). It is obvious, that Pillar Two (as well as Pillar One) poses major challenges for Switzerland. Low taxes, clearly a locational advantage for Switzerland, will lose importance. However, the
liberal economic system – in particular, the lib - eral labour law – good infrastructure, the first- class education system and the comparatively moderate corporate tax burden are reasons why Switzerland is, and will continue to be, a popular location for group headquarters and entrepre - neurial activities that yield high residual profits, despite quite high labour costs by international standards. Even though the effective Swiss tax burden may increase for multinational companies that fall under the Pillar Two regime, their higher tax costs may be offset by other benefits: the cantons are analysing how to use the expected additional tax revenues from the additional quali - fied domestic top-up tax, and it can be expect - ed that they will take measures to maintain and even improve their attractiveness. In this con - text, the instrument of the qualified refundable tax credit (QRTC) and the introduction of new subsidy schemes will play an important role. Given this situation, there will also be a signifi - cant tax rate differential between Switzerland and many other jurisdictions after Pillar Two, so foreign tax authorities are expected to continue to be increasingly interested in intra-group trans - actions with Swiss companies. 9.5 Entities Bearing the Risk of Another Entity’s Operations From a contract and commercial law perspec - tive, a group can freely allocate risks and func - tions to be assumed between its entities. With a view to the acceptance of such an allocation, the FSC held, in favour of the taxpayers, that the tax administration must recognise the contractual distribution of functions and risks undertaken by group entities, if these were not merely sham structures.
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