Vote on the OECD minimum tax in Switzerland
In line with the requirements of the G20/OECD, the Swiss parliament would like to introduce a minimum tax for internationally active companies as of Jan. 1, 2024. As the implementation of such a minimum taxation requires an amendment of the Federal Constitution, the Swiss population will vote on it on June 18, 2023. Our blog post provides an overview of the key points of the planned reform and describes the most important arguments and counter-arguments for the introduction of this so-called minimum taxation of multinational corporations.
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Initial situation and planned reform
The current taxation of large multinational groups of companies is no longer considered appropriate by the Organization for Economic Cooperation and Development (OECD) and the Group of Twenty Major Industrialized and Emerging Countries (G20). In this sense, it is currently possible for such corporate groups to have their income taxed at a low rate or not at all by legally shifting profits to tax havens. In view of the increasing globalization and digitalization of the economy, a new global tax standard is to be applied to these companies from 2024, which is intended to weaken international tax competition. Around 140 countries, including Switzerland, have agreed on a corresponding reform of international taxation rules.
According to the OECD, all multinationals with annual sales of at least 750 million euros are to be subject to a minimum tax of 15 percent, which is to be paid in the country in which the company has its registered office. If such a group pays less tax in one country, it can in future be taxed by other countries until the 15 percent threshold is reached. A profit tax rate of 15 percent is currently not reached in many Swiss cantons. The planned reform will affect a few hundred domestic and a few thousand foreign corporate groups in this country. For the vast majority of companies in Switzerland, however, the introduction of such a minimum tax would have no impact.
The concrete implementation in Switzerland is to take place in a simplified manner by means of a supplementary tax, which is levied in addition to the ordinary CIT at the federal and cantonal level. This supplementary tax will compensate for the difference between the effective tax rate in the relevant canton and the 15 percent. According to the bill, 75 percent of the revenue from the supplementary tax should go to the cantons and 25 percent to the federal government. A redistribution of the revenue is then envisaged via the national fiscal equalization system in order to enable the financially weak cantons to also receive a share of the revenue.
Arguments for an introduction of the OECD minimum tax
The proponents of the bill point to a number of advantages. In this respect, the implementation of the corresponding OECD/G20 project can, on the one hand, ensure stable framework conditions for Switzerland as a business location. Due to the fact that the companies concerned have to pay the tax anyway, the supplementary tax ensures that the tax revenue remains in Switzerland and does not flow abroad. The national financial equalization system also guarantees that all cantons benefit from the revenues generated by the supplementary tax. With the distribution key chosen, it is possible to use the additional revenue generated in particular in those areas where the increased tax burden has the greatest impact on the attractiveness of the location. Ultimately, the whole of Switzerland benefits from the preservation of the attractiveness of the location, the tax revenues and the jobs.
Last but not least, the bill respects federalism, as the cantons enforce the rules on the supplementary tax. Also, the cantons are basically free to decide how the revenue is to be used, although the municipalities are to be given due consideration.
Criticism of the OECD minimum tax
At the same time, the negative aspects of introducing the minimum tax must also be taken into account. As a result of minimum taxation, Switzerland loses tax attractiveness, which could lead to affected companies moving away from Switzerland or not settling here in the first place. Accordingly, there could be a reduction in revenue from corporate taxes and other levies. The administrative burden on companies and authorities will also increase. Last but not least, the agreed distribution key for the additional tax revenues is also criticized by some sides, as it is envisaged that 75 percent of the revenues will go to the cantons and only 25 percent to the federal government. In this context, from the point of view of the opponents of the bill, a higher federal share and a more even distribution of revenues among the cantons would have been desirable.
