A project accepted by the Swiss people
In a referendum held on 18 June 2023, the Swiss people approved a constitutional amendment implementing a minimum taxation of the net annual profit of multinational groups of companies, operating in Switzerland. The minimum taxation rules provide for an effective profit tax rate of 15%.
Minimum taxation in a nutshell
Alongside more than 140 countries, Switzerland has undertaken to apply this minimum taxation, which stems from an OECD and G20 initiative, the so-called "Anti Global Base Erosion" (GloBE). It is intended to take account of the increasing globalization and digitalization of economic relations.
This minimum taxation applies only to large internationally active groups of companies with a consolidated global turnover more than EUR 750,000,000. It therefore affects only around 1% of Swiss corporate taxpayers. By its very nature, it is mainly the urban cantons with a tax rate of less than 15% (e.g. Geneva) that will be impacted.
Immediate acceptance into Swiss law
Following the amendment to the Federal Constitution approved by the Swiss people, the Federal Council finally decided that the project would enter into force on 1 January 2024. The minimum taxation is temporarily regulated by a federal ordinance (Ordinance of 22 December 2023 on the Minimum Taxation of Large Corporate Groups, OIMin), published in the Swiss Official Compendium on 28 December 2023 . The OIMin will be replaced by a federal act within six years of the entry into force of the OIMin.
As provided for in the GloBE rules, the OIMin stipulates, as it stands, that if the profit of a Swiss taxpayer entity is taxed at less than 15%, the difference will be subject to a complementary federal tax. This supplementary federal tax will prevent the tax shortfall from being recovered by other GloBE participating States, which would be entitled to do so under the GloBE system of minimum taxation.
Conversely, the ordinance also provides for the levying by Switzerland of an international supplementary tax, i.e. a tax enabling it to recover insufficiently taxed foreign profits (i.e. at an effective rate of less than 15%), provided that at least one entity of the group is liable for taxes in Switzerland, under specific conditions.
Impact on tax revenues
As a country of good will, Switzerland has decided to implement the minimum tax from 1 January 2024.
At this stage, a short-term estimate suggests that the supplementary tax should generate additional annual tax revenues of between CHF 1 billion and CHF 2.5 billion, according to the Federal Council. 75% of this additional tax will accrue to the canton impacted by the minimum taxation.
According to a medium/long-term analysis, however, this new situation in the Swiss tax landscape could theoretically have negative consequences for Switzerland if the several hundred domestic companies, and especially the several thousand foreign companies (according to Federal Council figures), were to decide to leave Switzerland for countries with more attractive tax regimes.
This question is even more important given that several countries, including OECD and G20 countries (e.g., according to PwC's Country Tracker, the United States, China, Canada, Australia and Germany ), have decided to delay the application of the minimum tax and its integration into their national legislation, or have not yet made any announcement to this effect.
This raises the question of whether Switzerland has not precipitated the introduction of the GloBE system in its domestic law. We can only hope that those countries, which are still undecided, will quickly take the necessary steps to implement GloBE, and that Switzerland, joining those that have already taken the plunge, will not suffer harmful consequences in the future.
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