The OECD minimum taxation is an international project that will revolutionize the global tax system. It is notably designed to ensure that multinational enterprises pay a 15% minimum tax in each jurisdiction they operate in. The project could be seen as not in line with the corporate taxation strategy of Switzerland up to now. Nevertheless, all major political organisations in Switzerland want to implement and Switzerland was involved in it from the start. But why? To comprehend the implications of the Swiss implementation of the minimum taxation that we vote on June 18, 2023, it is worth taking a step back and looking at the proposal with the international aspect in mind.
The origin of the current international project lies in the so-called Base Erosion and Profit Shifting (BEPS) project. An OECD project that aimed to reduce tax avoidance and increase transparency internationally, especially targeting the challenge surrounding the taxation of the digital economy. However, this topic was put on hold because no consensus could be reached. It has now resurfaced but has been enlarged beyond digital companies.
A project for digital companies shifting towards multinational companies
This follow-up project consists of two pillars: Pillar One seeks to create a new taxing right for market jurisdictions, independently of any physical presence of a company. Pillar Two seeks to enforce the 15% minimum tax. The project was being developed on OECD level in an Inclusive Framework. This means that not only member countries of the OECD participated, but also non-members totaling to around 140 countries. Switzerland is part of the relevant working group, and the Swiss State Secretariat for International Finance has been involved in technical debates. Especially the work on the Pillar 2 progressed fast and the OECD is setting its implementation for January 2024.
The reasons for implementation are persuasive
The minimum tax is an internationally agreed set of rules that are not binding for countries. However, there are two reasons that will ensure implementation. First, there is a financial incentive to implement the minimum tax: if the minimum tax is not implemented in the country of a company’s headquarter, the multinational company will pay it in other countries which have adopted the minimum tax. Then, there are reputational consequences given the international consensus on the minimum tax. Not implementing the project sends a signal that the country does not want to comply with internationally agreed standards for taxation. Consequence is that most of the countries are ready to implement the reform beginning of 2024. These include the EU, Australia, Japan, Canada and the UK.
Switzerland’s time to decide
For affected companies the success of the project is important to ensure a harmonized approach worldwide and simultaneous implementation. A scenario far more desirable than a patchwork of national initiatives. Switzerland will vote on its implementation on June 18, 2023. A yes would ensure that Switzerland is ready in time. It would honor Switzerland’s reputation for high legal certainty. It would send a sign to the international community that we should no longer be considered a tax heaven. And maybe most compelling for many: It would ensure that the money will stay in Switzerland.
