Taxation of the Digital Economy - OECD Agreement on Global Tax Reform (Pillar One and Two)

137 countries of the Organization for Economic Co-operation and Development (OECD) - including Switzerland - agreed to a comprehensive global tax reform on 8 October 2021.

Pillar One will result in multinational corporations becoming taxable in a state even if they have no physical facilities in that state. At least 25% of profits exceeding 10% of turnover should be taxed in the states where the turnover is generated, irrespective of the existence of a physical presence. Double taxation of that part of the profit which is allocated to the market states should be avoided. This is to be achieved by exempting these profits from taxation or crediting them against tax in the state in which they were originally booked. However, the profit allocation envisaged in Pillar One can only be justified if the difference in profitability is actually due to tax avoidance or if value is created in the market state.

Pillar Two will introduce a global minimum tax for international corporations of 15%. The tax rate will be calculated at the level of the respective states and not at the level of individual companies. In addition, the calculation of the global minimum tax will be based on taxable profit and taxable net income, an international accounting standard and not local legislation. It is now envisaged that even states with an effective tax rate of less than 15% may levy the tax rate difference between their effective tax rate up to the amount of the minimum tax from the companies concerned. The introduction of minimum taxation does not eliminate global and intercantonal tax competition. However, in addition to generally good framework conditions for companies, location competition could partly shift to state grants, benefits and subsidies, as these instruments are not affected by the reform.

The Federal Council has decided to implement the reform. Following the Federal Council's decision of 11 March 2022, Pillar One and Pillar Two are to be implemented in stages by means of a constitutional provision (including a transitional provision). If the reform is approved by the people in June 2023, it should enter into force on 1 January 2024. The cantons should be able to decide sovereignly how they want to use any additional funds from the minimum tax.