April 2023 / Switzerland

The Swiss Federal Council and Parliament has encouraged voters to implement the OECD/G20 reform on minimum taxation for large multinational enterprises. The electorate will vote on the requisite constitutional amendment on 18 June 2023. In a press conference on 24 April 2023, Federal Councillor Karin Keller-Sutter presented arguments in favour of accepting the proposal.

Switzerland has signed up to the OECD/G20 minimum taxation project for large multinational enterprises, together with around 140 other countries. The aim is for these companies to pay at least 15% tax on profits in each jurisdiction if their annual turnover exceeds EUR 750 million. According to an estimate by the Federal Tax Administration (FTA), the OECD/G20 reform affects only a few hundred Swiss and a few thousand foreign corporate groups directly. The OECD/G20 minimum tax rate is to be introduced through a constitutional amendment, which will be subject to a vote by the people and the cantons.

By implementing the minimum tax rate, the Federal Council and Parliament want to ensure internationally stable framework conditions for Switzerland as a business location, and secure Swiss tax revenues and jobs. If Switzerland does not introduce minimum taxation, other jurisdictions could collect the difference between the lower tax burden in Switzerland and the minimum tax rate of 15%. Thus, introducing the minimum tax rate ensures that the tax revenues remain in Switzerland. Moreover, the legal framework creates legal certainty for the affected companies in Switzerland.

Under the proposed constitutional amendment, Switzerland will implement the minimum tax rate through a supplementary tax. This covers the difference between the current tax burden and the minimum tax rate of 15%. The FTA estimates that the revenues from the supplementary tax will amount to CHF 1 - 2.5 billion in the first year. Of the revenues from the supplementary tax, 75% will go to those cantons in which the current tax burden for the companies concerned is less than 15%. The Confederation will be entitled to 25% of the revenues. The parliament decided on such a distribution ratio that is based on a compromise reached between representatives of the Confederation, cantons, cities, and municipalities.

The cantons will decide independently on the use of their revenues, taking due account of the municipalities. The supplementary revenues will be used for national fiscal equalization. This ensures that all cantons benefit from the tax revenues, including the financially weaker cantons. Around one-third of the federal share will also flow into the national fiscal equalization. The Confederation will use the remaining funds for the nationwide promotion of locational appeal. This could, for example, involve fostering research or measures to achieve a better work/life balance.

Since several jurisdictions are planning to bring the minimum tax rate into force by 2024, the proposal which will be submitted to a popular vote ensures that Switzerland will be ready at the same time, by allowing the Federal Council to temporarily introduce the minimum tax rate by ordinance. Subsequently, the Federal Council will submit a respective implementation law to the parliament within 6 years, which will replace the ordinance.

The statistics for investment promotion by the federal government, cantons and regions conclude positively overall in 2022. A total of 265 companies were able to settle in Switzerland, creating 1,199 new jobs in the first year of operation. Over the next three years, these companies plan to create a total of more than 3,100 new jobs in Switzerland. In geographical terms, around half of the companies that have settled come from the USA, Germany and France.

Once a year, the Conference of Cantonal Directors of Economic Affairs (VDK), in cooperation with the cantonal economic development agencies and regional organizations, collects figures on new settlements of foreign companies in Switzerland. These are settlements achieved through the cantonal, regional and national location promotion agencies. Even though the number of companies settling in Switzerland has dropped by 17 to 265 compared to the previous year, the development of new settlements has remained relatively stable over the last 10 years (between 220 and 280 settlements per year). Due to the numerous environmental influences, the settlement business is subject to considerable annual fluctuations in some cases. As in previous years, most of the companies that have settled in the cantons are from the information and communications technology (ICT) or life sciences sectors.

Strengthening Switzerland as a center of innovation and technology

National investment promotion in Switzerland is a joint task of the federal government and the cantons. These mandate the official Swiss organization for export promotion and investment promotion, Switzerland Global Enterprise (S-GE), with the promotion activities with a national approach. The representations of S-GE abroad are part of the Swiss embassies or consulates general and are managed as "Swiss Business Hubs". The Swiss Business Hubs market Switzerland as a leading innovation and technology location and identify and advise high-value-added companies with settlement potential. S-GE forwards concrete settlement projects to the regions and cantons, which then lobby for a settlement in their canton in the federal competition.

The current 2020-2023 strategy of the national investment promotion of the federal government and cantons positions Switzerland with a clear focus on innovative companies from technologies with future potential. This is with the aim of sustainably strengthening the innovative power of the Swiss economy as a whole and keeping it competitive. In doing so, these companies also contribute to strengthening regional and local value creation as well as the SME landscape with their innovative know-how in their network. In principle, the federal government and the cantons want to continue to pursue this strategic thrust in the years 2024-2027. The Federal Council has also stated this in its dispatch on investment promotion 2024-2027.