Switzerland took a significant step on 1 January 2024, as it implemented the OECD’s minimum tax rate, marking a pivotal moment in its tax landscape. This introduction prompts a critical examination of its implications for the Federal Constitution, the overall tax system, the federal budget, and the multinational corporations that fall within its scope.
Brief Overview The minimum tax rate is being adopted in Switzerland through an ordinance, following a constitutional amendment approved by voters and cantons in a referendum on 18 June 2023. On 22 December 2023, the Federal Council confirmed the application of this minimum tax rate, which includes the introduction of a supplementary tax effective from January 2024. To enhance coherence with international standards, a federal act based on the income inclusion rule (IIR) will be presented to Parliament within six years, slated for implementation on 1 January 2025. This framework aims to combat base erosion and ensure a stable business environment in Switzerland.
Context The taxation regime currently applied to large multinational enterprises has come under scrutiny from both the Organisation for Economic Co-operation and Development (OECD) and the Group of Twenty (G20). To tackle the issue of perceived tax inequities, over 140 nations, Switzerland included, reached an agreement in October 2021, mandating that large multinationals with an annual turnover of at least EUR 750 million must pay a minimum tax rate of at least 15%. Notably, many EU member states and other leading industrial countries have already initiated the rollout of this minimum tax framework earlier this year.
Constitutional Changes The constitutional amendment, approved by an overwhelming 78.5% of voters on 18 June 2023, lays the groundwork for implementing this minimum tax rate in Switzerland. A key objective is to ensure that the additional tax revenue remains within Swiss borders rather than being diverted overseas. A transitional clause in the Constitution provides essential directives for the Federal Council’s implementation process, which is currently guided by an ordinance. This ordinance will remain operational until it can be substituted with a federal law, which must be presented to Parliament within six years at the latest.
Affected Entities The new minimum tax rate specifically targets multinational corporations with a global annual revenue of at least EUR 750 million. In Switzerland, this affects a limited number of domestic companies alongside several thousand foreign corporate entities. Consequently, nearly 99% of Swiss firms will not face direct changes in their tax treatments and will be subject to the existing tax framework. It’s worth noting that while some cantons may levy taxes lower than 15%, those with historically lower rates—commonly home to large, profitable firms—will feel a greater impact from these changes.
Implementation of Supplementary Tax In instances where the minimum tax is not met, the shortfall will be addressed through an additional federal supplementary tax. This supplementary tax, assessed by the cantons, will come into effect on 1 January 2024. The Qualified Domestic Minimum Top-Up Tax (QDMTT) will ensure minimum taxation for affected corporations based in Switzerland. Additionally, the international supplementary tax under the IIR will guarantee minimum taxation compliance for foreign business units of a corporate group not sufficiently taxed in other jurisdictions.
Anticipated Outcomes The financial implications of this minimum tax rate are still somewhat ambiguous. Initial estimates suggest that revenues from the national supplementary tax could range between CHF 1 billion and CHF 2.5 billion, with the first collections anticipated in 2026. This uncertainty stems from factors such as limited data availability, differences between the OECD/G20 assessment bases and current Swiss tax law, potential companies’ behavioral adjustments (e.g., reduced investments in Switzerland), and varying tax policy changes at the cantonal level.
Several cantons are already planning to increase their cantonal profit tax, which could lead to diminishing revenue prospects for the federal government from the QDMTT over time. As for the international supplementary tax, anticipated revenue is projected to be between CHF 0.5 billion and CHF 1 billion. However, as most jurisdictions are likely to enforce their minimum tax measures, revenue from the IIR may only be temporary. The OECD/G20 initiative is likely to diminish Switzerland’s appeal as a tax-friendly jurisdiction. Changes in corporate behavior in response to the new tax policy might adversely affect tax collection across various categories, including social security contributions. It will also restrict tax competition within the country, with higher-tax cantons potentially gaining an advantage over their lower-tax counterparts.
Furthermore, the administrative burdens faced by both companies and regulatory bodies are expected to rise as this new tax structure unfolds.
