Posted: 20 Jan. 2022

Implementation of Pillar Two in Switzerland requires new constitutional basis

On 13 January 2022 the Swiss government has published the framework on how OECD’s Pillar 1 and 2 shall be implemented into national law.

A new constitutional basis will be created with the involvement of parliament, the cantons and the Swiss citizens. Based on the new constitutional basis, the Federal Council will issue a temporary ordinance that implements the minimum tax rate as determined under the model rules issued by the OECD as of 1 January 2024. Thereafter, the legal basis can be prepared in an ordinary legislative procedure without time pressure and the ordinance will be replaced. Although, the rules will only be applied by the Swiss tax authorities as of 2024 multinational enterprises falling under the scope of Pillar 2 (global turnover of at least EUR 750 million) need to comply with the new rules as of 2023.

Further implications are outlined below.

For a more detailed deep dive into the implications of the new rules you can listen to the recording of our recent International Tax Webinar: Implications of the OECD's Pillar 2 - A Swiss perspective.


The main elements of Pillar 1 and 2 are as follows:

Pillar 1 (Taxation of the digital economy): Pillar 1 aims at partially reallocating taxing rights on the profit generated by large multinational enterprises (MNEs) to the market states according to the revenue generated in each jurisdiction. In scope of Pillar 1 are MNEs with global turnover above EUR 20 billion euros and profitability above 10%.

Pillar 2 (Global Minimum Tax or “GloBE”): Pillar 2 aims at introducing a rule set to enforce a global minimum tax. The minimum tax rate has been set to 15% and must be met in every single jurisdiction. In scope of Pillar 2 are MNEs with a global turnover of EUR 750 million.

To ensure a minimum taxation of 15%, the following mechanics shall be introduced in relation to Pillar 2:

Income Inclusion Rule (IIR) – the main rule:

The IIR applies on a top-down basis such that any tax due is calculated and paid by the Ultimate Parent Entity (“UPE”) to the tax authority in its country. The tax due is the “top-up” amount required to bring the overall tax on the income in each country where the group operates up to the minimum effective tax rate of 15%.

If the UPE is located in a country that has not implemented the IIR, the next intermediate holding company in the ownership chain calculates and pays top-up taxes in respect of their low-taxed subsidiaries. Specific “split-ownership” rules apply where a significant portion of the shares in a subsidiary are held outside the group.

A treaty-based switch-over rule will be designed to allow for the parent country to top-up the tax on the income of overseas permanent establishments to the minimum rate.

Undertaxed Payment Rule (UTPR) – the backstop rule:

The UTPR applies as a secondary rule in cases where the effective tax rate in a country is below the minimum rate, but the IIR has neither been applied by the UPE nor any of the intermediate holding companies in respect of a group company in that jurisdiction. The required top-up tax is allocated to other companies in the group on an annual basis based on a formulaic approach.

Subject To Tax Rule (STTR):

Developing member states of the OECD Inclusive Framework (“IF”) may impose an additional source taxation on certain related party payments that are subject to tax below a 9% rate.

A new way of how taxes will be determined going forward

Although Pillar 2 is seen by many as simply being the application of the minimum rate of 15% on the profit before tax, the framework goes way beyond such a simple task. In order to provide a level playing field, Pillar 2 does not just provide for a set of rules on how to levy a top up tax on low taxed income, but also defines how the tax basis will be determined, on which the minimum rate of 15% will be calculated. The starting point of the determination of the taxable income or loss under GloBE is the net income determined on a single entity basis following the accounting standard applied for consolidation purposes at the ultimate parent entity provided such accounting standard is considered an Acceptable Accounting Standard under GloBE. An Acceptable Accounting Standard under GloBE is for example IFRS or US GAAP as well as Swiss GAAP FER but statutory accounts prepared in line with Swiss commercial law are not “accepted” as a basis for the GloBE calculations. Various adjustments will have to be considered to determine the tax base under GloBE (e.g. income taxes are not deductible).

Therefore, Pillar 2 must be understood as the incorporation of a “third set of books” for any MNE falling within the scope, introducing a new way of how taxes will be determined going forward.

OECD’s common approach – Pillar 2 rules start applying as of 2023

The OECD's timetable for the minimum tax rate envisages that the primary rule (IIR) will be applied from 2023 and the backstop rule (UTPR) from 2024 onwards. The corresponding model rules have already been approved in the OECD and were published in December 2021. Aside from these rules, further guidance is to be adopted by the end of 2022 at the latest to facilitate the coordinated implementation of the model tax rules and related minimum tax rate across the jurisdictions.

The OECD rules on minimum taxation are a so-called common approach. This means that jurisdictions are under no political or legal obligation to adopt these rules. However, if they decide to transpose them into national law, they should follow the model rules and guidance of the OECD. Moreover, they must accept the application of the rules by other jurisdictions. Therefore, MNEs in the scope of Pillar 2 must comply with the rules even if only one jurisdiction where they operate in has implemented them in 2023.

Switzerland – Roadmap for the Implementation of Pillar 1 and Pillar 2

Considering that Pillar 1 requires the finalization of a new multilateral convention to facilitate a swift and consistent implementation by the IF member states, decisions on specific implementation steps on a national level are currently on hold.

Considering that the timeline set by the OECD for the application of the Model Rules under Pillar 2 is very ambitious and some points will remain open until the end of 2022, following the ordinary law enactment process in Switzerland would result in a bill that is either too late or would likely provide for considerable risks with regard to the quality of the bill, as the national rules must be closely coordinated with the OECD/G20 requirements, which will only become available during the course of 2022.

Therefore, the Swiss government has decided that a new constitutional basis will be created in order to adhere to the timetable set by the OECD - with the involvement of Parliament, the cantons and the Swiss citizens. Based thereon, the Federal Council will issue a temporary ordinance that implements the model rules as of 1 January 2024 in Switzerland . Thereafter, the legal basis can be prepared in an ordinary legislative procedure without time pressure and the ordinance will be repealed.

As the OECD’s Two Pillar Solution will result in increasing the tax burden of certain MNEs located in Switzerland, the Swiss government states that the minimum tax should be collected in a targeted manner and under consideration of the specific federal structures. Therefore, the following parameters have been adopted:

  • Ensure that the global minimum tax solely affects MNEs with global revenues of at least EUR 750 million.
  • Any additional taxes will be levied by the cantons. The additional tax receipts go to the cantons and any tax receipts levied thereunder will belong to the cantons.
  • The additional tax receipts are subject to the general rules for national fiscal equalization.


Although the OECD has published the model rules in December 2021, various details remain unanswered and require further guidance by way of a commentary (which is intended to be published during the first quarter 2022). Furthermore, guidance facilitating the coordinated implementation of the minimum tax rate across the jurisdictions will only be published during 2022.

Therefore, the Swiss government’s unconventional approach is very welcome since providing the best of both worlds, allowing to “meet” the timeline of the OECD as well as maintaining the highest level of flexibility possible to being able to await further guidance from the OECD without sacrificing a timely implementation. Additionally, the new constitutional provision will provide for a legal basis to treat MNEs in scope of Pillar 2 unequal to Swiss corporate taxpayers outside the scope of the Global Minimum Tax as well as provides the legislator with the power to deviate from other constitutional taxation principles if need be.

Besides the political angle, the tax technical aspects must also be taken into consideration. From a taxpayer’s view, the model rules published by the OECD in December 2021 on the one hand must be understood as a completely new set of tax rules, thus providing for much complexity in any case. On the other hand, the determination of the tax basis according to the model rules provides for the need of adopting the use of a third set of accounting data regularly resulting in MNEs having to adapt their existing ERP-system, thus requiring a multidisciplinary approach from tax, accounting, finance and systems experts.


Considering the worldwide political agreement on Pillar 1 and Pillar 2, as well as the fact that the minimum tax will be levied in any case, either in Switzerland or abroad, not changing the Swiss tax law is not an option.

Although the Swiss government did neither provide any technical details on how Pillar 2 should be implemented nor any insight into the prospective design of the Swiss domestic top-up tax to ensure levying a minimum tax rate of 15%, the approach chosen by the Swiss Government does provide a degree of legal and planning certainty to Swiss MNEs even though numerous topics around Pillar 2 remain unclear. Furthermore, this approach allows for a swift inclusion of any new guidance issued by the OECD during 2022 without significantly impeding the timeline presented by the OECD, thus contributing to maintain Switzerland's attractiveness as a business location.

Nonetheless, MNEs in scope of Pillar 2 must not await further publications but should be conscious that Pillar 2 will result in a fundamental change to the Swiss tax landscape and the de facto introduction of a parallel tax world. Pillar 2 will heavily impact the annual reporting obligations, tax planning as well will most certainly require adapting the current ERP-systems to be able to prepare the required calculations and tax returns under the model rules. MNEs affected must act now. Addressing the challenges in connection with Pillar 2 must become a number 1 priority for any MNE potentially in scope of Pillar 2 to be ready for 1 January 2023!

Deloitte study`s on the impact of the Global Minimum Tax Rate on Switzerland

Deloitte recently carried out an in-depth survey with 49 Heads of Tax to assess the perceived impact of the global minimum tax rate on Switzerland`s attractiveness as a business location. Further details and a downloadable copy of the report are available here.

Some key findings include:

  • Switzerland scores very highly for having a stable, political and legal environment, busines friendly authorities, very well-developed infrastructure and a high quality of life
  • However, over 75% of respondents believe the global minimum tax rate will pose a threat to Switzerland`s attractiveness, with 49% describing it as “definitively a threat”
  • 9% of respondents feel the global tax rate represents an opportunity with a further 14% believing its impact on competitiveness will be neutral

Survey respondents would like the Swiss government to implement the following actions arising out of any additional revenue from the global minimum tax rate: 1) abolish Swiss withholding, 2) reduce social security costs and 3) increase R&D subsidies and incentives.

If you would like to discuss more on this topic, please do reach out to our key contacts below.

Key contacts

Reto Gerber

Lead Partner, Business Tax

Martin Krivinskas

Partner, Transfer Pricing

Ferdinando Mercuri

Partner, International Tax

Jacques Kistler

Partner, International Tax