Switzerland will implement part of the OECD minimum tax reform from January 1, 2024. The most important questions and answers at a glance.
What is the starting point?
According to the Organization for Economic Co-operation and Development (OECD) and the Group of Twenty Major Industrialized and Emerging Countries (G20), the current taxation of large, internationally active business groups is no longer appropriate. More than 140 countries, including Switzerland, committed to a global minimum tax of 15 percent in October 2021.
Who is affected by the reform?
Only large, internationally active business groups with an annual global turnover of at least 750 million euros (about 700 million francs) are subject to the new minimum tax. In Switzerland there are a few hundred domestic and a few thousand foreign business groups.
About 99 percent of companies in Switzerland are not directly affected by the reform and will be taxed as before. Cantons with low tax burdens and where many large and profitable companies are located are particularly affected by the reform.
How is Switzerland implementing the reform?
A transitional provision in the constitution provides guidance to the Federal Council on how minimum taxation should be implemented. Implementation takes place with a scheme that regulates the introduction of an additional tax in your own country. The additional tax is a federal tax. Like the direct federal tax, it is levied by the cantons. Within six years, the Federal Council must also submit a federal law to Parliament to replace the regulation.
Are there exceptions?
Tax burdens of less than 15 percent are still possible if the company has substance. Thanks to the fabric deduction, companies that have many material assets and many employees can continue to be taxed on part of their profits at a lower rate than 15 percent.
In the first year, the fabric deduction amounts to 10 percent of the wage bill plus 8 percent of the material possessions. After the transition period, profits up to 5 percent of the wage bill and tangible fixed assets can benefit from the fabric deduction.
What are the financial consequences for the federal government?
The financial impact of minimal taxation is uncertain. The revenue from the additional tax is initially estimated at approximately one to two and a half billion francs.
The estimate does not include possible behavioral adjustments by companies, for example in the form of lower investments in Switzerland and tax policy decisions by the cantons, for example through adjustments in profit tax rates. In 2024, the Federal Council will decide on the specific use of the funds, which should benefit the economy as a whole.
…and for the cantons?
The OECD/G20 project makes Switzerland less attractive for tax purposes, especially the cantons with low taxes. To ensure that companies remain in Switzerland, some of the money raised through the additional tax should be used to finance measures that benefit Switzerland as a location. Tax competition is also generally limited within Switzerland. Cantons with high taxes become more attractive compared to cantons with low taxes.
What do Swiss citizens say about this?
In Switzerland, the people and cantons approved the constitutional amendment needed to implement the reform on June 18, 2023, with 78.5 percent yes votes.
What are the other states doing?
The vast majority of EU countries and other major industrialized countries also want to introduce a minimum tax by 2024. However, there will be delays in individual EU member states, most likely in Greece, Poland, Spain, Portugal and Cyprus. It is conceivable that implementation will take place retroactively in these countries, otherwise they will have to deal with infringement procedures.
Outside the EU, for example, Great Britain, Australia, Canada, Japan and South Korea also plan to introduce a minimum tax by 2024. However, Singapore and Hong Kong have announced that they do not want to introduce minimum tax rules until 2025. The US still has no intention of adopting the OECD/G20 guidelines. Countries such as China, Brazil and India currently have no plans to introduce minimum taxes.
Why this implementation at this time?
The Federal Council states that rapid implementation will prevent the outflow of tax revenues from Switzerland to abroad and create stable framework conditions for the economy.
If Switzerland were to refrain from introducing a minimum tax, Swiss branches of business groups from these countries would be taxed higher by their parent country, leading to an outflow of tax bases abroad. Available data shows that up to 50 percent of the profit tax base recorded with the additional tax would have flowed abroad in 2024 if Switzerland had not introduced it.
What are the reactions?
The economic umbrella organization Economiesuisse describes the introduction of the tax in early 2024 as “risky” because many countries are not yet involved. This is a disadvantage for Switzerland and its companies compared to states without minimum taxes. At the same time, Switzerland’s other location costs, such as the strong franc, high wages and real estate prices, remained significantly more expensive than abroad. The business location is increasingly coming under pressure.
Which implementations are still pending?
The Federal Council will decide on the introduction of further elements of the reform by the end of 2024. Switzerland will not use the new tax rights from early 2024 if a group of companies operating in this country do not meet the minimum tax requirement abroad. Subsidiaries of Swiss business groups abroad can therefore continue to benefit from lower taxes if they are located in countries that do not (yet) implement the minimum tax.
However, refraining from guaranteeing minimal taxation abroad creates an incentive for Swiss business groups to shift profits and activities to low-tax foreign subsidiaries. The Federal Council will monitor further international developments and decide at a later date on the introduction of the international additional tax.
What else are the OECD/G20 planning?
The OECD/G20 tax reform also includes another pillar. This means that in the future the world’s 100 largest companies will not only be taxed in the country where they are established, but also where their services are consumed. According to the federal government, between three and five Swiss companies are affected, including chemical companies Novartis and Roche and food giant Nestlé.
This first pillar will be implemented with a multilateral agreement, as the State Secretariat for International Financial Affairs (SIF) announced this summer. Switzerland has actively participated in the development and negotiation of all measures.
(hah/sda)
Soource :Watson
I am Amelia James, a passionate journalist with a deep-rooted interest in current affairs. I have more than five years of experience in the media industry, working both as an author and editor for 24 Instant News. My main focus lies in international news, particularly regional conflicts and political issues around the world.
