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The OECD project on the taxation of the digitalized economy continues to face major challenges. It seems increasingly unrealistic that the technical differences of opinion in Pillar 1 will be resolved. There is some hope in the side project of Amount B. Pillar 2 (minimum taxation) continues to be implemented by European countries, but not by major economies such as the US, China, Brazil or India. The US elections and the resulting changes are likely to lead to significant adjustments to the existing rules. President Trump and the US Republicans are likely to influence the rules so that they do not affect US companies. By contrast, Switzerland will not be able to escape the minimum tax. It should immediately abandon the existing incentives in the competition for business locations and turn its attention to the new competition requirements as soon as they have been adopted. Otherwise, the federal government’s current financial problems can only be solved with a truly painful austerity programme. 

Contents
The OECD project on the taxation of the digitalised economy is based on two pillars and is intended to improve the acceptance of international corporate taxation. The work is being carried out by the OECD Secretariat. The new tax rules are formally adopted by the ‘OECD/G20 Inclusive Framework on BEPS’ (hereinafter: IF), which comprises more than 140 states. In October 2021, the IF countries adopted the political parameters for the two pillars. Since then, intensive work has been ongoing on the technical implementing provisions. In the case of Pillar 1, a multilateral agreement is to be submitted to the states for signing and subsequent ratification before the end of 2024. Pillar 2 will not be implemented by means of a multilateral agreement, but rather through the uniform implementation of the rules that have been jointly developed but individually adopted by the states (common  approach).

State

The future of the G20-initiated project to tax the digital economy remains uncertain. The initial euphoria has completely evaporated. The last technical differences of opinion regarding Pillar 1 should have been resolved long ago so that the multilateral convention can be signed and subsequently ratified. The signing process should have started at the end of June 2024, but in mid-December there is still no date. This increases the likelihood that work on a multilateral convention will fail. The only hope of progress remains on a side issue (Amount B). Furthermore, there are serious doubts as to whether the rules of the convention will ever come into force, as the US is unlikely to ratify the agreement. Without the US, the redistribution of tax base cannot start.  

The situation regarding the OECD minimum taxation (Pillar 2) appears somewhat better: by the beginning of 2024, almost all European countries have started implementing it. However, the US, China, Brazil, India and the majority of IF member states are still not showing any signs of introducing the minimum tax, which is why it is currently seen as primarily a European project (to weaken the attractiveness of their own locations (Link Letter from US Congress members September 17, 2024).

Outlook

Many states would like to support industrial companies and attract additional investment instead of creating tax obstacles. The global competition to attract successful industrial companies, their attractive jobs and high tax payments is raging harder than ever before. 

Whether the minimum tax will be implemented globally or remain a regional project will likely depend to a large extent on the demands of the new US administration under Donald Trump, which cannot be foreseen at present. The aim of the USA will be to strengthen its own competitiveness and to ensure that the minimum tax does not stand in the way of this, neither domestically nor, preferably, for US corporations, abroad. If other states voluntarily choose to make themselves less competitive by means of the minimum tax, this will probably be just what the US wants. China, too, is likely to look after itself first and, in view of its economic situation, will not decide on any measures that would place a burden on its own internationally active companies. At the end of 2025, the protective effect of the transitional UTPR safe harbour will end for many states and their companies. This means that from 2026, UTPR states such as Germany could also access US profits that are taxed too low, such as those of many US corporations like Google, Microsoft, etc. However, the US or China will never allow this. Therefore, the year 2025 could still bring substantial changes to the OECD minimum tax. 

The economically successful small state of Switzerland will have to fight hard to prevent unfair rules from being adopted at the expense of Switzerland and in favor of EU states or the USA or China. In doing so, Switzerland must prepare itself for a very tough economic war waged with unfair means. Disadvantages for Switzerland as a business location are likely to have a financial impact on the federal government and the cantons in the near future. 

Position

Despite the aforementioned uncertainty regarding the global spread of minimum taxation, SwissHoldings supports the Federal Council’s decision of 4 September to introduce the foreign supplementary tax IIR at the beginning of 2025. Switzerland is not the USA or China, which can escape minimum taxation. Nor can we influence the rules in such a way that special exceptions are made for Switzerland internationally. In view of the uncertainty, it is important that Switzerland reacts flexibly to changes in the framework conditions for minimum taxation and restores or secures its attractiveness as a business location in the best possible way. To this end, Switzerland must vehemently oppose discriminatory regulations at the international level. It is not acceptable for the IF to retrospectively tighten minimum taxation rules significantly by means of administrative guidelines or to decide on important exceptions for major powers. 

Since the competition between locations is fiercer than ever and the willingness of states to face up to the competition is being closely monitored by international companies, the federal government and cantons cannot simply stand aside. Otherwise, the abundant tax revenues of international companies are likely to decrease rapidly. Without these revenues, it will be extremely difficult for the federal government in particular to overcome its current financial problems without resorting to painful austerity programmes. The federal government and the cantons should therefore immediately adapt to the adjusted competition between locations and develop new, internationally accepted instruments, as well as generally improve their attractiveness as business locations in the area of digitalisation and many other areas. The problem, however, is that the rules for what internationally permissible location measures should look like are only now being developed. Until these rules are fully developed, there is always a risk that the cantons’ plans will be thwarted.