Minimum tax update - introduction of the IIR in Switzerland

In September 2024 , the Swiss Federal Council has decided to introduce a part of the international supplementary tax with the so-called Income Inclusion Rule (IIR) as of January 1, 2025. With the international supplementary tax, profits of foreign subsidiaries of Swiss corporate groups in particular will be recognized for tax purposes in Switzerland, provided that the consolidated group of companies generates global sales of at least EUR 750 million. The Swiss Federal Council has decided, however, not to implement the second international supplementary tax, the UTPR, for the time being.

‍Securingtax income in Switzerland

Both the Swiss people and the cantons already voted in favor of the introduction of the OECD/G20 minimum tax in the summer of 2023. The primary aim of introducing the OECD/G20 rules is to prevent Switzerland from foregoing tax revenue in favor of foreign countries, which is to be ensured by the already introduced domestic supplementary tax (QDMTT) on the one hand and the planned international supplementary tax (IIR) on the other. If the member states of the European Union (EU) and other important industrialized countries comprehensively apply the minimum taxation from 2025, Switzerland can now ensure that the associated substrate is taxed in Switzerland with the entry into force of the IIR. If the IIR had potentially been waived, however, other countries would have been able to tax the foreign profits in accordance with the current provisions of the OECD/G20 minimum taxation, including as part of the second international supplementary tax, the so-called UTPR.

Minimum tax associated with uncertainties despite additional tax revenue

The introduction of the minimum taxation will lead to an additional tax burden for the groups of companies concerned, which may impair Switzerland's attractiveness as a business location if, for example, competing locations in Switzerland do not introduce the regulations. Nevertheless, the Swiss Federal Council considers such an additional burden and the associated weakening of an important locational advantage to be acceptable from the point of view of the Swiss economy. According to the Swiss Federal Council, it is also to be expected that the additional domestic tax base that Switzerland will secure, particularly with the forthcoming entry into force of the IIR, will in turn be available to strengthen Switzerland as a business location. The introduction of so-called "Qualified Refundable Tax Credits", which are currently under discussion in the cantons of Zug and Graubünden, for example, should be considered here. Last but not least, the Swiss Federal Council's decision also increases legal certainty in Switzerland by protecting affected companies from a large number of tax proceedings in countries where the UTPR is applied.

The estimate of the IIR's revenue potential is uncertain due to various factors. According to federal calculations, the additional revenue in Switzerland could be between CHF 500 million and CHF 1 billion. According to the constitutional distribution formula, CHF 125 to CHF 250 million of this would go to the -Swiss Confederation and CHF 375 to 750 million to the cantons.

These uncertainties arise not only from the inaccurate estimation of income, but also from the unclear global implementation of the OECD tax rules. Many countries have not yet adopted the new rules. Reasons for this include incompatibilities with existing tax systems or dissatisfaction with the OECD/G20 project in some countries. The developing countries, which have recently sought to influence global tax policy in their favor within the institutional framework of the UN, and the USA are particularly worthy of consideration here. This increases the potential for international conflicts, as various countries may not be able or willing to reach an agreement.

No implementation of the UTPR in Switzerland

As can be seen from the Swiss Federal Council's decision, the secondary international supplementary tax (so-called "Undertaxed Payments Rule", UTPR) will not be introduced for the time being. Although the vast majority of EU member states as well as the United Kingdom, Canada and Australia currently intend to introduce a UTPR, probably by 1.1.2025, the Swiss Federal Council considers such a step to be too risky in relation to the revenue potential of the corresponding tax and also considers its application to be legally difficult. As a catch-all provision, the UTPR would also ensure minimum taxation for profits that are not subject to a QDMTT or an IIR. In this case, profits of subsidiaries in which a Swiss company does not hold an interest and where no parent holding company is domiciled in Switzerland would also be subject to taxation in Switzerland in the event of an non-taxation event abroad. In view of the ambiguous international acceptance of this rule, a temporary waiver of the UTPR in Switzerland therefore appears justified according to the Swiss Federal Council.

Conclusion

The national supplementary tax (QDMTT), which was already introduced on January 1, 2024 and ensures the minimum taxation of affected corporate groups in Switzerland, is to be expanded from 2025 to include the international supplementary tax (IIR). The latter is primarily aimed at the minimum taxation of all business units of a corporate group at the ultimate parent company level, even if there is no minimum taxation abroad. In combination, these two tax rules applicable in Switzerland, which are derived from the OECD/G20 minimum taxation framework, are intended to increase the existing legal certainty for Swiss companies and also ensure that the domestic tax base is not taxed abroad.

However, there is still uncertainty about the global application of the OECD rules, which is why it is important to closely monitor legal developments and examine the impact on your own group. We will be happy to support you in this.