As of 1 January 2024, the constitutional amendment for the implementation of the OECD / G20 minimum taxation for large multinational enterprises in Switzerland has entered into force. It authorizes the Federal Council to issue the necessary provisions by ordinance as a transitional solution for the fastest possible implementation until a federal act enters into force. This ordinance has now been entered into force as of 1 January 2024 as well by the Federal Council. In view of the introduction of minimum taxation some cantons have already decided on adjustments to corporate income tax rates.
OECD / G20 minimum taxation and introduction in Switzerland
In the popular vote on June 18, 2023, the Swiss people and cantons approved the necessary constitutional amendment for the implementation of the OECD / G20 minimum taxation for large multinational enterprises in Switzerland. On December 22, 2023, the Federal Council announced that the ordinance will enter into force on the same day as the constitutional amendment, i.e. on January 1, 2024, thereby introducing minimum taxation in Switzerland. However, this is limited to the national supplementary tax (Qualified Domestic Minimum Top-up Tax, QDMTT). It has refrained from applying the international supplementary tax rules (Income Inclusion Rule, IIR and Undertaxed Profit Rule, UTPR), which are provided for in the ordinance, for the time being. The partial introduction of the minimum taxation results in a tax increase for Swiss corporate groups and in particular US corporate groups with directly held Swiss constituent entities, provided the GloBE ETR in Switzerland is below 15% (and no corresponding substance-based income exclusion applies). However, there will generally be no additional tax burden for corporate groups from countries that introduce an IIR from January 1, 2024.
The reasoning of the Federal Council for this partial introduction of the minimum taxation is the aim of preventing the erosion of the Swiss tax base in favour of other countries. In contrast, an IIR would currently lead to the capture of under-taxed tax substrate from abroad, with negative effects on Switzerland’s attractiveness as a business location. As things stand at present, it is expected that Switzerland will apply all measures, including the UTPR, from 2025 if at least the EU states then introduce the UPTR, which is to be assumed based on the current legal situation.
The Federal Council’s decision had been eagerly awaited. After the popular vote, it emerged that around three quarters of the 140 countries that had agreed in 2021 to introduce a minimum tax were not prepared to implement the rules by 2024 (status autumn 2023). These countries include economically important trading partners such as the USA, India and China. This reluctance to implement the rules is based on various factors, among others OECD rule changes (e.g. temporary relief for UPEs in jurisdictions with an income tax rate of at least 20%). Various business associations had therefore recommended that the Federal Council consider postponing the entry into force by one year.
Tax rate increase at cantonal level
Even before the Federal Council’s decision to partially introduce the OECD / G20 minimum taxation in Switzerland as of January 1, 2024, a certain pre-emptive effect was already evident in certain cantons. For example, in some cantons (e.g. Neuchâtel and Schaffhausen), adjustments to corporate income tax rates had already been decided in view of the introduction of minimum taxation in order to achieve that the companies concerned are taxed sufficiently with ordinary corporate income tax and to avoid additional taxation as part of minimum taxation, whether in Switzerland or in another country.
The most recent example of this is the canton of Schaffhausen, where voters approved an amendment to the cantonal tax law on November 19, 2023 with effect from January 1, 2024. In particular, the amendment introduces a multi-stage rate for companies with profits of CHF 5 million or more. This change intendeds to bring high-earning companies as close as possible to the minimum taxation of 15% on profits required by the OECD / G20 minimum taxation. The majority of companies in the canton Schaffhausen will not be affected and will continue to benefit from lower taxation.
Further developments in Switzerland and abroad regarding the implementation of the OECD / G20 minimum taxation remain to be seen. Considering the developments so far, there may still be more surprises coming.