The Swiss Federal Council and the Swiss Parliament want to implement the OECD/G20 reform on minimum taxation for large multinational enterprises (Pillar Two). On June 18, 2023 the Swiss electorate will vote on the requisite constitutional amendment. At a press conference that took place on April 24, 2023, the Swiss Federal Councillor Karin Keller-Sutter presented arguments in favour of accepting the proposal.

Together with around 140 other countries Switzerland has signed up to the OECD/G20 minimum taxation project for large multinational enterprises. The aim of the project is to ensure that in each jurisdiction, such enterprises will pay at least 15% tax on profits if their annual turnover exceeds EUR 750 million. According to an estimate by the Swiss Federal Tax Administration (FTA), only a few hundred Swiss and a few thousand foreign corporate groups are directly affected by the OECD/G20 reform. In Switzerland the OECD/G20 minimum tax rate should be introduced by means of a constitutional amendment, which will be subject to a vote by the people and the cantons.

At the aforementioned press conference of April 24, 2023, the Swiss Federal Councillor Karin Keller-Sutter, together with Ernst Stocker (the President of the Cantonal Council of Zurich), Nathalie Fontanet (a Member of the Cantonal Council of Geneva) and Daniel Leupi (a Member of the Cantonal Council of Zurich and President of the Conference of City Finance Directors,) explained the reasons for accepting the proposal, which was adopted by Parliament in December 2022. They stated that by implementing the 15% minimum tax rate, the Swiss Federal Council and the Swiss Parliament are aiming to ensure internationally stable framework conditions for Switzerland as a business location, and secure Swiss tax receipts and jobs. If Switzerland did not introduce the minimum taxation, other jurisdictions could collect the difference between the lower tax burden in Switzerland and the minimum tax rate of 15%. Thus, introducing the minimum tax rate ensures that the tax receipts remain in Switzerland. Moreover, the legal framework creates legal certainty for the affected companies in Switzerland.

Additional receipts will benefit everybody

Under the proposal, Switzerland will implement the minimum tax rate by means of a supplementary tax. This covers the difference between the current tax burden and the minimum tax rate of 15%. The FTA estimates that the receipts from the supplementary tax will amount to CHF 1-2.5 billion in the first year. However, it is difficult to gauge either the short- or the long-term financial impact of the supplementary tax.

Of the receipts from the supplementary tax, 75% will go to those cantons in which the current tax burden for the companies concerned is less than 15%. The Confederation will be entitled to 25% of the receipts. This distribution ratio was decided by Parliament and is based on a compromise reached between representatives of the Confederation, cantons, cities and communes.

The cantons will decide independently how they will use their receipts, but they must take appropriate account of the communes. The supplementary receipts will be taken into consideration for national fiscal equalization. This ensures that all cantons benefit from the tax receipts, including the financially weaker cantons. Around a third of the federal share will also go towards national fiscal equalization. The Confederation will use the remaining funds for the nationwide promotion of locational appeal; this could, for example, involve fostering research or measures to achieve better work/life balance.

A bone of contention during the parliamentary debate was the distribution of the receipts from the supplementary tax between the Confederation and cantons, and between the cantons themselves. The chosen distribution ratio led a minority to reject the proposal. The majority of parliamentarians want to be able to introduce the OECD minimum tax rate in Switzerland and are in favour of the proposal.

Swift implementation via ordinance

Many jurisdictions – especially the EU – are planning to bring the minimum tax rate into force by 2024. The proposal which will be submitted to a popular vote ensures that Switzerland will be ready at the same time, by allowing the Federal Council to temporarily introduce the minimum tax rate via an ordinance. Subsequently, the Swiss Federal Council will submit a law to Parliament within six years. This will replace the ordinance.

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