G-20 finance ministers voted to back a new global minimum tax rate in Washington, a step that will have consequences for Swiss banks and the domestic economy.
The Organization for Economic Co-Operation and Development (OECD) intends to introduce a global minimum corporate tax rate of 15 percent, after G-20 finance ministers voted on Wednesday in Washington D.C. in support of it.
The world's largest corporations will no longer be able to book profits in countries with lower tax rates but will pay taxes based on where sales are generated.
Large and Small
A two pillar solution has been drafted with that in mind. Pillar 1 is for companies that have at least 20 billion euros in sales and whose profitability on that is more than 10 percent. As part of that, there will be a new special purpose rule to allocate profits to countries where the company does not have a presence.
In Pillar 2, which applies to companies with more than 750 million euros in sales with cross-border activities allocates a top-up tax using an effective tax rate calculated by jurisdiction.
Stable and Fair
Under the plan, the minimum corporate tax rate will be 15 percent, which should create a «more stable and fairer international tax system», according to a communique released by the G-20. The new rules will be effective from 2023.
The minimum tax rate «should be achievable for Switzerland», Federal Councilor Ueli Maurer told «Radio SRF» on Wednesday. He is assuming that about 200 companies in Switzerland would be affected by the new rules as well as several thousand affiliates of overseas based companies.
Federal Councillor Ueli Maurer (Picture: Keystone)
«A change in legislation is needed to implement the rules», Maurer emphasized while raising hopes there will be some leeway in the way developed countries are measured under the new rules.
Tight Deadline
According to the finance minister, the question of implementation is still open. One problem is that the global minimum corporate tax creates a difference in treatment between large companies and small and medium sized ones. «Fundamentally, one can say that the problems that need to be solved are not as large as they are portrayed to be», the Federal Councillor said.
He believes that the new rules can be introduced without having to resort to a popular referendum. The changes are not as much as originally had been feared. It will take roughly three years for Switzerland to implement the new rules in consideration of the drafting process, parliamentary legislation and subsequent cantonal implementation, which according to Maurer is «a tight deadline for us».
Billions Expected
G20 finance ministers expected significant additional tax revenues from the new rules, with Germany's Ifo-Institut telling Reuters it expects an extra $7 billion from them.
Swiss industry associations expect that Switzerland will become less competitive in comparison to countries with higher tax regimes, more so than any attractiveness it stands to gain from jurisdictions with significantly lower taxes.
What about the Banks?
As regulated financial institutions, the banks are not immediately affected by Pillar 1. With regards to Pillar 2, they are affected in the same way that all other large Swiss multinationals are, except for small and medium sized institutes, as the Swiss Banking Association writes in a position paper (German only).
