This is a free translation. The original article was published by Finanz und Wirtschaft, Themenspecial Recht und Steuern, publication date: 10.09.2022, Open PDF (original)
Interview with Prof. Dr. René Matteotti
Professor Matteotti, what does the OECD minimum tax mean for companies in concrete terms?
From 2024, large internationally active companies will have to pay at least 15 percent profit tax in each country in which they have subsidiaries or branches. If the minimum taxation is not achieved in a country, the difference will be covered by a supplementary tax. This can be levied by the state in which the minimum taxation is not achieved. However, if the state in question waives the minimum taxation, it is the turn of the state in which the ultimate parent company of the group is located.
What happens if that state does not implement the OECD model regulations?
In this case, the state in which the second highest company in the group chain has its registered office has the right, and so on. Subsidiarily, subsequent taxation takes place in the states with subsidiaries and branches of the group affected by minimum taxation. Due to this almost watertight system, it is practically impossible for large corporations to escape minimum taxation. In Switzerland, around 200 Swiss groups and around 2,000 to 3,000 subsidiaries of foreign groups are likely to be affected.
What consequences can be expected for these corporations?
For them, the OECD reform means above all higher tax burdens. Some companies will try to pass on the higher taxes to their customers and/or reduce personnel costs. In the future, taxes will play a lesser role in the choice of location. Other factors, such as the cost of wages, real estate or rent, political stability, legal security and national debt, will have a greater influence on the future location and investment decisions of corporations.
Certainly, there is also a huge additional compliance burden …
That’s right. National tax law is now being overlaid with a new layer of complex, harmonized tax rules. However, the extensive financial information required for this is not yet available in automated form. In addition, the systems used by corporate groups for tax reporting need to be adapted. Not to mention the model rules, which raise numerous questions of interpretation. It is highly likely that countries will interpret the rules differently, which could lead to increased overtaxation. This is because many countries tend to interpret the minimum tax rules in favor of their own treasuries, which is why companies will increasingly be involved in tax disputes.
In your view, what principles must be observed when implementing the minimum taxation rules?
Switzerland must ensure minimum taxation at domestic level if it wants to prevent foreign countries from levying supplementary taxes on profits generated in Switzerland. It must also ensure that its rules are accepted internationally. In other words, international compatibility is the most important principle, since otherwise the companies concerned would be threatened with overtaxation here as well. At the same time, Switzerland must ensure the greatest possible flexibility in the current constitutional amendment and largely preserve its competitiveness. Excessive taxation must be avoided so that entrepreneurial activities do not migrate abroad and jobs are destroyed. Switzerland should intervene in the well-established federal constitutional fiscal order as gently as possible and only to protect Switzerland as a business location and local jobs.
What are the critical points of the Federal Council’s proposal?
It provides the legislature with the necessary flexibility to react in a targeted manner to international developments that are in flux, for the benefit of the business location and jobs. At the same time, it obliges the legislator to align itself with the international model rules. This is an important signal to legislators and companies who want to play by the internationally agreed rules in order to obtain as much legal certainty as possible. The most critical point is the amount of the federal government’s share of the revenues generated. The higher the federal share, the lower the incentive for the cantons to offer attractive tax rates. The lower the federal government’s share, the less it interferes with inter-cantonal tax competition. In my opinion, the Federal Council has presented a balanced proposal to parliament with a federal share of 25 percent.