The introduction of the OECD minimum tax is forcing the Swiss cantons to further develop cantonal economic development measures so that location promotion activities remain effective even under the new tax rules. The canton of Graubünden has now become the first canton to present a proposal that provides for Qualified Refundable Tax Credits (QRTC) as a location promotion measure.
Economic development measures with different effects
Traditional location promotion measures such as tax relief, the patent box or the research and development deduction become virtually ineffective under the OECD/G20 Inclusive Framework on BEPS GloBE model rules for large multinational groups. In general, these instruments directly reduce the tax expense. As of January 1, 2024, the reduced tax expense for companies affected by the OECD minimum tax will be offset against the GloBE tax base through the Swiss qualified domestic minimum top-up tax (QDMTT) up to a tax burden of 15%.
Subsidies and Qualified Refundable Tax Credits (QRTCs) are treated differently under the GloBE model rules. QRTCs are considered as subsidies. The respective cash flow to the company is made directly through the tax system (i.e. the tax bill) within 4 years. QRTCs are paid out in a fixed amount if the legal requirements are met and are independent of the profits generated by the business. They are therefore also paid out/offset within 4 years if a company generates losses and the QRTCs cannot be (fully) offset against tax claims. This is the key differentiating factor compared to traditional economic development measures, which only take effect if a company generates taxable profits.
According to the GloBE model rules, subsidies and QRTCs do not reduce the tax expense. Rather, they increase revenues or reduce expenses. As a result, pre-tax profits increase, and so does the tax expense. However, the tax expense does not increase as much as the subsidy, which means that the taxpayer receives a net benefit from the QRTC or subsidy.
Qualifying activities in the canton of Graubünden
The canton of Graubünden intends to revise the law on the promotion of economic development in the canton of Graubünden (GWE) in order to create a legal basis for granting QRTCs to companies. According to Art. 4a nGWE, companies that make a significant contribution to
- increase value added in the canton
- strengthen research, development and innovation, or
- improve environmental sustainability
may apply for one-time or recurring QRTCs. According to current plans, the ordinance will specify when such a significant contribution has been made. In its explanation, the cantonal government cites as examples the creation of qualified jobs or location investments, investments in innovative processes or the intensification of contract research, as well as measures to reduce CO2 or general measures to benefit the environment. The canton therefore envisages a wide range of measures that are eligible for support.
Financial impact
A 2022 study estimated that the canton of Graubünden would receive an additional CHF 7.3 million per year from the Swiss QDMTT. The cantonal government itself is currently unable to quantify the additional revenue. However, it expects the additional revenue from the Swiss QDMTT to be significantly lower.
The consultation draft contains provisions on the distribution of the potential additional revenue in the canton of Graubünden.
25% of the additional tax revenue accruing to the canton of Graubünden is to be distributed to the municipalities in accordance with the revised Art. 97abis para. 1 nStG GR.
75% of the additional tax revenue accruing to the canton of Graubünden must be used to finance the QRTCs. Together with the partial revision of the financial budget law of the canton of Graubünden, according to which QRTCs will be offset against tax liabilities, the canton of Graubünden does not expect any additional budgetary burden or relief. QRTCs are therefore treated differently in the government accounts than subsidies, which are recorded on a gross basis.
Future developments
Companies, associations and other interested parties are now invited to participate in the consultation process and comment on the draft bill. The consultation process will last until April 15, 2024.
Based on the feedback received, the cantonal government will submit a dispatch with the corresponding draft decree to the state council. Once it has been debated and abpproved by the state council, any revision of the law will be subject to an optional referendum.