This is an automated translation.
With the Side-by-Side package, the OECD is strengthening the minimum taxation while offering new flexibilities. US companies are effectively exempted through recognition of the American system. Other countries can benefit from administrative simplifications and the new possibility of substance-based tax credits. The package offers opportunities for Switzerland, as it allows for OECD-compliant deductions of wage costs and investments. The question now is what tax policy strategy it intends to pursue in international competition.
On Monday, the OECD adopted the so-called side-by-side package, which was agreed upon by the 145 countries of the Inclusive Framework. The key change concerns the exemptions for the US. US companies are no longer subject to the OECD minimum tax, as the US minimum taxation system is recognized as equivalent. In addition, the package provides for administrative simplifications, in particular the ETR Safe Harbour, as well as new substance-based tax credits.
Clear commitment to OECD minimum taxation
Speculation about a possible failure of the OECD minimum taxation has proven to be false for the time being. The countries of the Inclusive Framework – including the US, the EU, China, and India – unanimously approved the package, thereby clearly committing themselves to the continuation of the OECD minimum taxation. In short, international support for the project has been strengthened. At the same time, the package explicitly calls for comprehensive implementation of the OECD rules by the participating countries so that their domestic top-up taxes are considered OECD-compliant.
Overall positive development for Switzerland
While the side-by-side system gives the US and its companies a business location advantage, the package is positive overall from Switzerland’s perspective. Administrative simplifications are generally appreciated, and in this case, the OECD’s declaration of intent to strive for further simplifications is particularly welcome. For Switzerland, however, the substance-based tax credits are the most significant change. They open up the possibility of introducing new instruments that allow up to 5.5 percent of Swiss personnel costs or depreciation on tangible assets to be deducted from taxes. These deductions are OECD-compliant and permissible under minimum taxation rules.
New scope for action to strengthen the country’s attractiveness as a business location
The OECD is thus creating additional flexibility, which is likely to make international tax competition more important again. This opens up an opportunity for Switzerland to strengthen its tax attractiveness within the framework of proven mechanisms and without resorting to industrial policy subsidies, which are becoming increasingly common abroad. However, this requires that the relevant instruments be enshrined in national law – which is not yet the case in Switzerland, with the exception of the highly restricted research and development deduction (Art. 25a StHG). It is now up to the federal government and the cantons to decide how they want to position themselves in the tax policy area. The first strategic question that arises is for which companies Switzerland should become more attractive. One thing is clear: Switzerland now has new scope for action to create attractive conditions for relevant functions and lucrative investments by multinational companies.
Contact
Martin Hess | Head Tax Policy | +41 (0)78 805 04 95
