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We thank you very much for the opportunity to comment on the Minimum Tax Ordinance in the context of the implementation of the OECD/G20 project on the taxation of the digital economy.
1. Implementation of the model rules
The draft ordinance provides that the model provisions adopted by the Inclusive Framework on 14 December 2021 will be declared directly applicable by means of a reference. SwissHoldings supports the approach proposed by the Federal Council. In our opinion, this is the only way to ensure that the OECD Model Rules and, above all, the implementation rules based on them in the Commentary as well as those of the Implementation Framework are fully applicable in Switzerland. For our member companies, it is central that Switzerland does not issue any regulations that deviate from the Inclusive Framework regulations. Such regulations are likely to cause problems for both the Swiss authorities and the companies concerned when cooperating with foreign countries. For example, they could result in double taxation for the companies, which would then have to be eliminated by the Swiss authorities together with the Swiss companies concerned in the course of lengthy and hitherto unknown procedures. In other words, Switzerland would do well to follow the OECD guidelines. These are the best guarantee for averting disputes with other countries and for avoiding that tax substrate has to be transferred to foreign countries as a result of deviating Swiss regulations. At present, however, the OECD guidelines still contain numerous gaps and ambiguities, which is highly unsatisfactory both for the Swiss authorities and, above all, for the Swiss companies concerned. A great deal of detailed work therefore still needs to be done at international level to improve legal certainty. Our experts therefore currently assume that a large number of double taxation cases could arise as a result of the numerous ambiguities regarding the correct application of the OECD requirements. The federal government and the cantons should prepare for this in good time in terms of personnel and organization – in order to protect the Swiss tax base.
At the same time, we understand that the reference to the Model Rules of the Inclusive Framework is of a static nature, i.e. adjustments of individual provisions of the Model Rules compared to the version of 14 December 2021 and adjustments of the Commentary and other OECD documents based thereon will not be adopted by Switzerland unseen. Adjustments to the Model Rules are only valid once the Federal Council approves the reference to the updated Model Rules and brings them into force. However, mere OECD adaptations of the Commentary or the other implementing provisions (without adaptation of the Model Rules) are not affected by this static reference.
2. Enactment
The explanatory report states that the Federal Council assumes that the ordinance will enter into force on January 1, 2024. If there are delays in the implementation in other countries, the Federal Council will reconsider the entry into force. SwissHoldings also currently assumes that the minimum taxation in most countries of the Inclusive Framework will come into force in 2024, which is why Switzerland should also orientate itself towards this date. At the same time, however, it must be taken into account that there is political resistance in the EU and also in the USA. Even a failure of this project cannot be completely ruled out at present. The Federal Council should be able to take these special circumstances into account and, in consultation with internal and external experts as well as the relevant parliamentary committees, decide for itself whether and when to bring the ordinance into force. SwissHoldings therefore explicitly welcomes that the Federal Council is granted the necessary flexibility in this matter. Depending on international developments, it might even make sense to consult the cantons, the affected companies and other stakeholders on this issue and to regulate the possible entry into force in detail in the course of this (e.g. regulation for companies whose financial year does not correspond to the calendar year).
3. Special features in relation to the minimum taxation system in the USA
SwissHoldings advises a particularly cautious approach with regard to the provision of Article 6(3) of the draft ordinance (application of the Undertaxed Payments Rule [UTPR]). In our opinion, the Federal Council should regularly review during the coming months, based on international developments, whether Switzerland should actually implement this rule. Furthermore, we are of the opinion that Switzerland should implement the UTPR, if at all, only after a transition period of at least one year after the introduction of the Income Inclusion Rule (IIR) (draft EU regulation).
Caution should be exercised with regard to the introduction, in particular, because of investments by US companies in Switzerland. For example, the OECD minimum taxation rules (according to GloBE) will not be the same as those in the USA. The USA also has a minimum taxation system. The main difference is that, despite the same tax rate of 15 percent, the U.S. rules have a different tax base and, with GILTI, the U.S. applies “global blending” (which is more advantageous from a company’s point of view) rather than (stricter) “juristictional blending”. Accordingly, compared to the GloBE system used by Switzerland, the rules in the USA may result in higher taxation in one year and lower taxation in another year. The Federal Council proposes that Switzerland also consistently apply the UTPR to U.S. corporations with a Swiss subsidiary and that U.S. companies’ profits earned in the U.S. be subject to Switzerland’s international supplementary tax. Thus, if in any year U.S. companies comply with the U.S. minimum taxation rules (e.g., U.S. tax rate 16%) but violate the GloBE requirements (e.g., GloBE tax rate 14%), the Federal Council wants to consistently impose the international supplemental tax and force the Swiss subsidiary to remit the tax here in Switzerland on a pro rata basis.
The USA and US companies are the largest foreign investors here in Switzerland. US companies employ tens of thousands of people in Switzerland. The USA is the largest export nation for goods produced by Swiss industrial companies. SwissHoldings believes that these U.S. investments and associated local jobs, as well as indirectly the huge exports of Swiss industrial companies, should not be jeopardized. Furthermore, we assume that the US could defend itself (e.g. countermeasures in the trade area) if other states want to access pure US tax substrate via the UTPR. To counter such measures, in all likelihood the United Kingdom will refrain from using the UTPR. Currently, much is still in flux in this regard. Therefore, we believe that with regard to Article 6(3) of the draft ordinance, the Federal Council should closely monitor international developments in the coming months and, if necessary, implement a different solution to avoid unnecessary damage to the Swiss economy. In the process of reaching a decision, a variety of factors must be considered by the Federal Council. For example, waiving the application of the UTPR will result in significant competitive tax disadvantages for affected companies with Swiss headquarters compared to U.S. competitors. It therefore seems sensible to us to closely involve not only the parliamentary commissions but also the business community in the decision-making process.
4. Allocation of the supplementary tax to the business units and distribution of the gross profit
The regulations proposed by the Federal Council in Articles 8 and 9 of the draft ordinance are largely supported by SwissHoldings. The regulations strive to implement an allocation of the supplementary tax and the distribution of the gross profit that is as fair as possible to the polluter. However, with regard to the allocation to the business units according to the polluter-pays principle (Art. 8 para. 1), it should be noted that in practice other requirements must also be taken into account. Insofar as there are good reasons for a different allocation or on-charging to individual companies, the negative effects described in the Explanatory Report (p. 10), e.g. in the area of withholding tax, issue tax or value added tax, must be dispensed with.
There are various models as to how the polluter-pays requirements are to be implemented in practice. SwissHoldings advocates a solution that is implementable but at the same time as accurate as possible. The allocation of the supplementary tax proposed by the Federal Council in Article 8 paragraph 3 according to the principles of federal law regarding the prohibition of intercantonal double taxation represents a feasible, but not always accurate solution in intercantonal situations with permanent establishments. SwissHoldings advocates that a more accurate solution must be possible (right of choice). Accordingly, SwissHoldings proposes to generally apply the simpler (but less accurate) model A. If the company concerned and its head office canton want to use the more accurate and more polluter-friendly Model B, this should be possible. Model B is better suited to take account of the polluter-pays principle than model A. The complexity is only slightly higher in comparison and should, in our opinion, be easy to implement in practice. Accordingly, we call for the adaptation of Article 8 (3) of the draft regulation.
5. Miscellaneous
Regarding Article 1(2) of the draft regulation: In our opinion, the affiliation is not solely assessed according to the internal law in the DBG, but also according to the applicable double taxation treaties. This should be stated in the ordinance.
Regarding Article 4(1): The minimum taxation requirements only apply to companies which, on the one hand, exceed the sales threshold of EUR 750 million and, on the other hand, maintain business units in at least two countries. Groups which only have business units in a single country are not covered, even if the turnover threshold is exceeded. This important principle should be clearly stated in the wording of the regulation. This also applies to the de minimis rule of Article 5.5 of the Model Rules (exemption for business units with less than EUR 10 million in sales and less than EUR 1 million in profits in the financial year).
We thank you very much for your consideration of our concerns.
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