Switzerland Approves Constitutional Amendment for OECD/G20 BEPS 2.0 Project Implementation

Zurich, 18 June 2023 – Switzerland has taken a significant step towards implementing Pillar One and Pillar Two of the OECD/G20 Base Erosion and Profit Shifting (BEPS) 2.0 project by approving a constitutional amendment through a public vote. The amendment, which received a majority vote from 78.5% of Swiss elective citizens and unanimous support from all 26 Cantons, provides the legal framework for the introduction of these rules into Swiss domestic law.

The constitutional amendment empowers the Swiss Parliament to incorporate Pillar One and Pillar Two taxes into federal tax bills, if deemed appropriate. To meet the ambitious timeline set by the OECD, the amendment includes a transitional provision for Pillar Two, allowing the Swiss Federal Council to implement the rules through an ordinance until a permanent tax bill is enacted by the Swiss Parliament.

The transitional provision aligns with the fundamental principles of the Pillar Two Model Rules, including the scope of application for multinational enterprises (MNEs) with a consolidated annual turnover exceeding EUR 750 million and a minimum tax rate of 15%. It also addresses the calculation of the effective tax rate and outlines the consequences if the effective tax rate in Switzerland falls below the 15% minimum threshold. In such cases, the Income Inclusion Rule (IIR), the Undertaxed Profits Rule (UTPR), and a Qualified Domestic Minimum Top-up Tax (QDMTT) are likely to be enforced to ensure proper taxation.

Flexibility is also incorporated into the transitional provision, allowing the Swiss Federal Council to make adjustments based on developments at the OECD level and in other jurisdictions. This ensures that Switzerland can implement Pillar Two in a manner that best serves its interests.

Under the constitutional amendment, the additional revenue generated from Pillar Two taxes will be shared between the Federation and the Cantons. The Federation will receive 25% of the proceeds, while the Cantons will be entitled to 75%. The distribution of the top-up tax revenue among the Cantons is regulated by the transitional provision. The QDMTT revenue will be allocated to the Canton where the under-taxation occurs, while the IIR and UTPR revenue will go to the Canton of the top Constituent Entity in Switzerland.

In terms of implementation, the Swiss Federal Council is expected to issue a draft permanent tax bill to the Swiss Parliament for the enactment of Pillar Two within six years after the transitional introduction by ordinance. Currently, there are no specific plans in place for the implementation of Pillar One.

Parallel to the constitutional amendment, the Swiss Federal Council has already released drafts of the transitional ordinance for Pillar Two, focusing on both technical and procedural aspects. The public consultation period for these drafts is ongoing, allowing stakeholders to provide input and suggestions.

The approval of the constitutional amendment marks a significant milestone in Switzerland’s efforts to address base erosion and profit shifting. The country aims to minimize the impact of the BEPS 2.0 project on affected companies and maintain its attractiveness as a business location. With the expected implementation of Pillar Two on 1 January 2024, Switzerland is poised to play a crucial role in ensuring fair taxation in market jurisdictions and establishing minimum taxation standards.

Following the positive outcome of the public vote, several Cantons are expected to announce their plans for reinvesting the additional revenue generated from Pillar Two taxes, further benefiting the Swiss economy and its regions.

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