Updates

The OECD/G20 project on taxation of the digital economy comprises profit redistribution (Pillar 1) and the introduction of a global minimum tax of 15% for large corporations (Pillar 2). While Pillar 1 is blocked, Pillar 2 has already been implemented by various countries. However, the US under President Trump is now likely to succeed in implementing a special solution with the side-by-side system, which largely exempts US corporations from IIR and UTPR. The side-by-side system is to be adopted by the end of 2025, which will give the US a clear competitive advantage. The OECD is currently working on Administrative Guidance to implement this. However, negotiations are stalling: emerging economies fear disadvantages and companies criticize the excessive complexity. Due to these developments, Switzerland needs to find other ways to increase the attractiveness of the location.

Contents

The OECD project on the taxation of the digitalized economy aims to enhance the acceptance of international corporate taxation. The project is being advanced under the “OECD/G20 Inclusive Framework on BEPS” (hereinafter IF), which currently includes 147 countries. It consists of two pillars. Pillar 1 focuses on a greater redistribution of profits from the approximately 200 most successful multinational groups from their headquarters to the market jurisdictions. Pillar 2 provides for the introduction of a minimum corporate tax rate of 15 percent for all groups with revenues of at least EUR 750 million.

State

The implementation of Pillar 1 has so far not progressed beyond work at the OECD level. Pillar 2, however, is much further advanced — the EU member states and Switzerland, among others, have fully or partially implemented the global minimum tax. According to the OECD, 61 countries have implemented one or more elements of the minimum tax. At the same time, the project has long faced major challenges: most members of the Inclusive Framework (IF) have still not implemented any minimum tax elements, including major economies such as the United States, China, and India.

In January 2025, U.S. President Trump announced that the United States would withdraw from both pillars of the OECD digital taxation project. Regarding the OECD minimum tax, the U.S. demands that its own tax system be recognized as equivalent and allowed to coexist with it — a model now referred to as the “Side-by-Side System.” To ensure that minimum-tax jurisdictions accept the U.S. demand, the U.S. Congress included in its so-called One Big Beautiful Bill (BB-Bill) a provision (IRC Section 899) imposing extremely severe sanctions.

At the end of June, the G7 countries reached an agreement (see G7 Statement) to implement the Side-by-Side System (SbS System). In return, the United States agreed to remove Section 899 from the BB-Bill. The G7 statement specifies that:

• U.S. parent companies will be fully exempt from both the UTPR and IIR (but not from foreign QDMTTs) with respect to their domestic and foreign profits.
• Work on the SbS System will be conducted in parallel with major administrative simplifications to the OECD minimum tax.
• Adjustments to the treatment of substance-based, non-refundable tax deductions under the OECD minimum tax will be considered.

Since then, the Inclusive Framework has been working intensively to implement the G7 statement. By the end of 2025, a package consisting of three new Administrative Guidances is to be finalized and formally adopted. The first guidance will define the technical details of the SbS System (Coordinating Safe Harbor). The second will include a calculation model enabling companies to demonstrate compliance with the minimum tax threshold in a jurisdiction more easily (Simplified ETR Safe Harbor, replacing the CbCR Safe Harbor). The third will allow minimum tax jurisdictions to grant new tax deductions or credits to companies meeting strict substance requirements (e.g., R&D, manufacturing, or other operational expenditures).

However, this work has recently stalled. On the one hand, major emerging economies such as China and India fear significant competitive disadvantages vis-à-vis the United States under the SbS System. Resistance has also emerged regarding new tax deductions and credits, as countries are pushing for broader measures. On the other hand, companies argue that the proposed Simplified ETR Safe Harbor is far too complex and fails to deliver meaningful simplification.

Outlook

The year 2025 is likely to bring significant changes to the OECD minimum taxation framework. By the end of the year, the 147 IF member states are expected to unanimously approve the SbS System, thereby formally endorsing an exemption for the United States from the OECD minimum tax. Given that the U.S. under President Trump has clearly demonstrated its willingness to impose severe sanctions on other countries, it is unlikely that any IF member state will block this exemption.

As a result of both the exemption and the tax advantages for U.S. companies under the BB-Bill, many European business representatives expect that the United States will gain a competitive edge over jurisdictions applying the OECD minimum tax. Whether the IF will succeed in offsetting this U.S. advantage through an effective new substance-based deduction or a genuinely simplified ETR Safe Harbor remains doubtful — and may not even be the goal of key OECD member states. Consequently, Switzerland and other economically successful small countries must expect to face a disadvantage in future global tax competition.

If the IF fails to offset the U.S. advantage and provide sufficient incentives for the introduction of a QDMTT, it will be difficult to persuade countries such as China, India, and others to adopt the minimum tax, or to convince states like Singapore to maintain it. The OECD minimum tax could thus become even more of a predominantly European project. It appears politically unlikely that European countries will abandon it, as doing so would require a unanimous decision to repeal the EU Minimum Tax Directive. Moreover, European states are expected to resist allowing countries like Switzerland to withdraw from what they view as a financially and economically burdensome regime without facing major consequences.

Position

The OECD minimum tax is a project driven by economically powerful high-tax countries, targeting successful smaller nations with low corporate tax rates. The goal is to reduce the tax attractiveness and economic independence of such countries. Switzerland, alongside Singapore, Ireland, and a few others, is particularly in focus. The intention is for multinational companies to pay a larger share of their taxes in high-tax jurisdictions. It appears unlikely that the OECD minimum tax will fail due to the U.S. withdrawal, as both the United States — which remains actively involved in shaping the framework — and most European countries have a strong interest in maintaining it and encouraging as many states as possible to adopt a Qualified Domestic Minimum Top-up Tax (QDMTT).

For Switzerland, the OECD minimum tax represents a competitive disadvantage. Nevertheless, under the current circumstances, withdrawing from the system would not be a viable option. To preserve its economic success and the substantial tax revenues generated by international companies, Switzerland must explore new ways to attract and retain high value-added functions. Key areas include efficiency, digitalization, international connectivity, and a service-oriented, business-friendly administration. A successful canton’s policy toolbox should also include internationally permissible financial incentives. In particular, the Qualified Refundable Tax Credits (QRTCs) explicitly allowed under the OECD minimum tax rules — and already used effectively by competitor countries — can help strengthen R&D, innovation, and other high value-added activities. Switzerland’s goal should be to remain among the world’s top three most attractive locations for high value-added functions, even under the minimum tax regime.