Given the size and influence of Switzerland in a global context, we as a country need to choose our battles, stay agile and adapt to the new tax landscape.
For years, countries like Ireland, Singapore and Switzerland, to name but a few, were known for steadily lowering the bar a few notches in what was commonly seen as a “race to the bottom” in international tax competition. If the first BEPS project put the brakes on this development, Pillar Two with its minimum global taxation has certainly brought the process to a standstill, or even put it into reverse.
The battle for the lowest tax rates has given way to a new race – this time to the top, for state subsidies and grants. As Switzerland rides the wave of minimum taxation, it also joins other countries in instrumentalizing subsidies, grants and qualified refundable tax credits (QRTCs) to maintain and improve location attractiveness.
What to expect from this publication
Riding the wave of minimum taxation
The introduction of global minimum taxation – including in Switzerland – has already triggered a cascade of legislative changes. The associated shift in the fiscal competition landscape makes the role of subsidies more important than ever.
Global minimum taxation of 15% limits opportunities for a country to position itself as an attractive low-tax location. Against this background, we observe a trend both internationally and within Switzerland toward subsidy competition, with increased subsidies and qualified refundable tax credits (QRTCs) available in various scenarios. This development could lead to a tax competition of sorts being introduced through the back door – despite the minimum taxation regime.
For better or worse, Switzerland will have to join in but must remain conscious of the somewhat limited possibilities. Subsidies have direct cost consequences and may miss the mark. Switzerland cannot pursue an industrial policy like large countries. Instead, it should focus on the targeted use of QRTCs for multinational companies engaging in activities relevant to value creation. In doing so, the country can promote an internationalized economy and rely on its own strengths to generate revenue through economic growth.
Minimum taxation – implementation status
Of the more than 130 countries that agreed to the OECD/G20’s two-pillar project, only around 30 have already introduced (certain) minimum taxation rules from 2024.
These are primarily EU member states alongside countries such as Korea, Norway, the UK and Vietnam. Other countries such as Hong Kong, Malaysia and Singapore are planning to introduce the rules from 2025.
Swiss progress
Switzerland is among the early adopters. Following the referendum of 18 June 2023 on creating the constitutional basis, the Federal Council enacted the respective Minimum Taxation Ordinance on 22 December 2023. While the Federal Council did not, in principle, meet demands for a postponement, Switzerland only introduced the local top-up tax (Qualified Domestic Minimum Tax, QDMTT) for financial years beginning on or after 1 January 2024.
Introduction of the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR) was waived for the time being, though it had already been safe to assume that the latter would not be introduced as early as 2024, as most other countries are not planning to introduce this mechanism until 2025, if at all.
Commitment unconfirmed
In some relevant countries such as Brazil, China, India and the US, it is still unclear whether and as of when (certain) minimum taxation regulations will be introduced. Whether global minimum taxation will prevail in the longer term will also depend in particular on whether the relevant countries participate in the project in the foreseeable future.
Until then, it is conceivable that multinational enterprises will not be affected by minimum taxation – as long as their presence is limited to non-participating jurisdictions or no UTPR applies.
Personal and corporate income tax
Personal income tax
Income tax rates for natural persons in Switzerland and abroad are generally stable, with a change of just 0.72 percent in the average tax rate.
In a European comparison, the cantons of Central Switzerland remain competitive and can hold their own against low-tax havens such as Jersey and the Isle of Man.
Globally, the traditional offshore domiciles as well as Hong Kong and Singapore continue to offer the most attractive tax rates.
Corporate income tax
In a European comparison, the cantons of Central Switzerland remain competitive and continue to rank ahead of low-tax countries such as Ireland and Cyprus.
Various countries in Northern, Western and Southern Europe are once again the leaders in Europe in 2024.
Globally, the traditional offshore domiciles continue to lead the tax attractiveness league table.
