The OECD/G20 BEPS 2.0 Project – A Two-Pillar approach

The BEPS 2.0 project

The continued work of the OECD/G20 on Action 1 - addressing the tax challenges arising from the digitalization of the economy - of the original Base Erosion and Profit Shifting (BEPS) Project resulted in a two-pillar approach known as BEPS 2.0. However, the BEPS 2.0 Project evolved far past the digitalized economy and now affects all large multinational enterprises (MNE). More than 138 of the 145 Inclusive Framework member countries have reached a consensus on BEPS 2.0, which will dramatically change the international tax system. The Inclusive Framework on BEPS allows interested countries and jurisdictions to work with the OECD and G20 members on developing, implementing and monitoring BEPS related standards.

Key elements of the Swiss Pillar 2 implementation

Due to the tight timeline set forth by the OECD/G20, Switzerland decided to implement Pillar Two by way of a transitional ordinance which is based on a constitutional amendment approved by the Swiss elective citizens in a public vote on 18 June 2023. At a later point in time the Swiss Parliament will enact a Federal Pillar Two Act.

As a result of uncertainty in relation to the adoption of Pillar Two, the Federal Council decided to introduce only a QDMTT in Switzerland through a transitional ordinance which entered into force on 1 January 2024. While the ordinance comprises the regulations for an IIR and UTPR application, the Federal Council will revisit the entry into force of these mechanisms at a later point in time. With the implementation of the QDMTT, Switzerland ensures that it will not forgo any tax revenues to foreign jurisdictions while remaining flexible in light of any future global Pillar Two developments as regards the IIR and UTPR mechanisms.

The additional tax collected from the application of the QDMTT will be split between the cantons (75%) and the federation (25%). The additional revenues generated after any additional required payments in the national fiscal equalization scheme will be reinvested in measures to consolidate the attractiveness of Switzerland as a business location.

Next steps

With the first GloBE Information Return (GIR, the internationally standardized Pillar Two tax return) due 18 months after the end of the first fiscal year of being in-scope of the GloBE rules (the return deadline is 15 months the following fiscal years), affected companies must respond now and move from the readiness phase to the design phase of their internal Pillar Two implementation (from the first to the second phase of the implementation life cycle depicted in the graphic below). Generally, all in-scope MNEs should now – after the completion of the readiness phase – have an initial understanding on how the group structure impacts the tax calculation and collection mechanisms, have identified data gaps for the filing obligations related to Pillar Two and maybe even have run a high-level provisioning and Transitional Safe Harbor exercise. Since Switzerland has not introduced an IIR, Swiss groups also need to understand where they have filing obligations and potential tax payment obligations. Moving into the design phase of the implementation life cycle requires detailed decisions to be made on the combination of people, process and technology which would provide the most efficient and effective solution to manage all reporting, compliance and planning activities on an ongoing basis.