Digital economy: Swiss quantum leap towards global minimum tax
The Federal Council intends to implement the new rules and opened a consultation on this subject on 11 March 2022. We presented the consultation draft (LINK zur Vernehmlassungsvorlage) to the approximately 100 people attending our SwissBanking Seminar on 18 March 2022.
What is the global minimum tax?
At present, companies pay taxes wherever they have a physical presence. However, the digital transformation is increasingly making it possible to sell products and services anywhere in the world without any foreign presence whatsoever. The OECD has responded to this development with a plan for new tax rules. Since we are not really witnessing the emergence of a separate “digital economy” as such but rather the digitalisation of the economy as a whole, the OECD believes that piecemeal changes are not enough. A compromise started to take shape among the OECD/G20 states early in 2021 that shifts the focus away from technology firms towards the world’s biggest and most successful companies. These are to be subject to “market taxation”. In parallel with this, a global minimum tax rate of 15% will apply to their profits. Both plans are set to be implemented as soon as 2023 or 2024.
As far as Switzerland is concerned, it is important to note that the minimum tax will also have an impact in the cantons where corporate profits are already taxed at a rate of 15% or more because, in addition to the minimum tax rate, the OECD will also introduce new rules governing how taxable profits are calculated. In some respects, these will be much broader in scope than our current rules. The new regime will affect not only the economic centres of Zurich, Basel and Geneva, but also other cantons, especially those with low tax rates. The minimum tax rules have been designed to allow foreign tax authorities to demand taxes from Swiss companies if the rate at which they are taxed in Switzerland is below the minimum.
Transposition into Swiss national law
The Federal Council now wishes to transpose the OECD minimum tax rules into national law. This would affect the companies targeted by the OECD, namely those with global revenues of more than EUR 750 million a year, in the form of a “top-up tax” if the minimum tax rate of 15% is not achieved in Switzerland. The cantons would be responsible for this top-up tax. The additional income would be used to fund measures to preserve Switzerland’s appeal as a base for companies.
Given the OECD’s ambitious timetable, the intention is to introduce the new rules via an amendment to the Federal Constitution and a temporary Federal Council ordinance, which would eventually be replaced by a new federal law.
The SBA’s view
The Federal Council’s proposals in relation to the OECD tax project appear reasonable in spite of their considerable public policy implications for the interests of the business community. Switzerland should adopt new international standards. In this respect, the draft can be seen as a necessary evil. It will protect companies in Switzerland from potential foreign tax demands and create greater legal certainty. However, additional income from the new top-up tax must be used to promote Switzerland’s standing as a business location.
The proposal to amend the Federal Constitution and issue a temporary Federal Council ordinance appears to be a viable solution to implementing the rules on schedule by 2024. A similar approach was taken when value-added tax was introduced in 1995.
From the banks’ point of view, the most important thing is to ensure that the Federal Council ordinance keeps the negative tax impact of the new rules on calculating profits to an absolute minimum. To this end, the SBA is playing an active role in the federal and cantonal expert groups.