Swiss Electorate Overwhelmingly Votes in Favor of OECD's Minimum Corporate Tax Rate

In a decisive national plebiscite held on June 18, the Swiss electorate voted in favor of adopting the OECD's pillar two framework for a minimum corporate tax rate. With an overwhelming majority, 78.5% of voters supported the measure, while 21.5% opposed it.

The outcome of the vote adds Switzerland to the growing list of over 140 jurisdictions worldwide that have embraced the OECD standard for minimum corporate taxation.

Under the new tax regime, Switzerland's average corporate tax rate, estimated at 11%, will be raised to a federal minimum effective rate of 15%.

The application of the minimum rate will be limited to "internationally active" multinational enterprises (MNEs) with an annual turnover of €750 million ($822 million). This revenue benchmark applies to approximately 1% of the companies operating in Switzerland.

As Swiss law currently lacks a provision to specifically target these MNEs, an amendment to the country's constitution will be necessary to impose the new tax rate on large enterprises.

The Federal Council of Switzerland is now mandated to present a legislative bill for parliamentary voting within six years to implement the changes. In the meantime, a transitional provision will be enforced.

In Switzerland's decentralized political model, each of the 26 cantons can set its own corporate tax rate. To achieve the new 15% rate, the federal government will impose an additional tax on top of existing cantonal levies.

The initial projections suggest that the minimum national rate will generate between CHf1 billion ($1.1 billion) and CHf2.5 billion for the country's budget. The broad valuation reflects various factors related to the implementation of the new rate and the anticipated response from the business community.

Of the tax revenue collected, a quarter will be allocated to the federal government, while the remaining three-quarters will be distributed among the cantons.

Acknowledging the potential consequences, the Swiss government expressed concerns that the application of the 15% rate may impact Switzerland's reputation as a business-friendly jurisdiction. The council stated, "This could cause companies to move away or decide not to establish a base in Switzerland in the first place."

In addition to increased tax obligations, large MNEs will face additional administrative burdens to comply with the new system.

Despite these changes, Switzerland will still maintain a competitive tax advantage compared to neighboring European countries. According to PwC, the new corporate tax rate positions Switzerland favorably against jurisdictions such as Germany, France, Italy, and Austria, where rates exceed 20%.

By fLEXI tEAM