Swiss Federal Council releases dispatch on constitutional amendment for BEPS 2.0 implementation in Switzerland

Executive summary

On 23 June 2022, the Swiss Federal Council published the dispatch alongside the proposed constitutional amendment for the imminent Base Erosion and Profit Shifting (BEPS) 2.0 implementation in Switzerland. The dispatch provides the basis for the upcoming parliamentarian discussions, culminating in a public vote likely to take place in June 2023.

The constitutional amendment will provide the legal basis for the introduction of Pillar One and Two into Swiss domestic law in the ordinary legislative procedure. Furthermore, due to the urgency of the implementation, the amendment also contains a transitional provision to implement Pillar Two in a first step by way of temporary ordinances. This would lead to an application of the Pillar Two rules from 1 January 2024.

From a material perspective, the constitutional amendment reflects the Federal Council’s decision dated 12 January 2022, in which it was decided to introduce Pillar Two by implementing the Income Inclusion Rule (IIR), the Undertaxed Payments Rule (UTPR) as well as a domestic top-up tax (in the form of a Qualified Domestic Minimum Top-up Tax (QDMTT) as per the Pillar Two Model Rules) to ensure the 15% minimum level of taxation in Switzerland for in-scope multinational enterprises (see EY Global Tax Alert, Switzerland plans to implement OECD minimum tax rate for large multinational companies from 2024, dated 14 January for background).

As result of the feedback received during the public consultation procedure, the following aspects were adjusted in the dispatch and the updated draft constitutional amendment:

  • Potential additional proceeds resulting from the QDMTT, IIR and UTPR will be shared between the Cantons and the Federation, instead of attributing the whole amount to the Cantons as proposed in the public consultation. While the Cantons would receive 75% of the additional proceeds, the Federation would be entitled to the remaining 25%. According to the transitional provision in the constitution, the Cantons must adequately consider the cities and communes.

  • The additional proceeds going to the Federation are appropriated according to the constitutional amendment. After the additional required contributions into the national fiscal equalization scheme, the remaining proceeds should be used for measures increasing the attractiveness of the Swiss business location.

  • In contrast to the consultation proposal, the dispatch now explicitly stipulates that the legislation procedure should consider the modalities of foreign domestic Pillar Two implementations – such as in the European Union (EU) Member States and the United States – when enacting the temporary ordinances.

  • The Federation generally expects additional revenues. However, they iterated that any estimation is highly uncertain at this moment.

  • From a procedural point of view, Pillar Two will be introduced in a first step by way of two ordinances. The first ordinance will regulate the material aspects and the second all procedural aspects.

The release and content of the dispatch are a welcome development. The suggested provisions provide affected companies with legal certainty and show that the Swiss Government is committed to maintaining Switzerland's attractiveness as a business location by ensuring the lowest possible impact of the BEPS 2.0 project for affected companies. Furthermore, it seems likely that Switzerland will be able to adhere to its internal deadlines, with the Pillar Two rules slated to be introduced by 1 January 2024.

Detailed discussion

As a result of the Organisation for Economic Co-operation and Development (OECD)/G20 BEPS 2.0 project, multinational enterprises (MNEs) will be subject to increased taxation. The BEPS 2.0 project follows a two-pillar approach. Pillar One intends to increase the profit share taxed by marked jurisdictions by a reallocation of taxing rights with a new profit allocation and nexus rules for marked jurisdictions. It applies to companies with global revenues of more than €20b and a profitability of more than 10%. Pillar Two, on the other hand, applies to MNEs with a turnover over €750m and ensures a 15% global minimum tax rate. In particular on Pillar Two, the work is advanced and the application of the rules is imminent. As Switzerland cannot prevent the higher taxation of the affected MNEs – due to the functioning of the rules – it can better safeguard its economic and fiscal interests by implementing these new rules, despite not being legally required to do so. Otherwise, Switzerland would lose tax revenues without increasing its competitiveness.

Content of the draft constitutional amendment

In line with the Federal Council decision dated 12 January 2022 and the draft constitutional amendment published for public consultation on 11 March 2022, Switzerland plans to implement the BEPS 2.0 Pillar Two charging provisions – the IIR and the UTPR – allowing Switzerland to tax foreign low-taxed income of MNE groups with an entity in Switzerland. On one hand, this leads to additional tax proceeds – at least in the short term – and on the other hand, it saves Swiss-headquartered MNEs from additional foreign tax proceedings.

Furthermore, Switzerland will introduce a domestic top-up tax to ensure the 15% minimum taxation. This domestic top-up tax should qualify as a QDMTT as stipulated in the Pillar Two Model Rules. This QDMTT applies only to in-scope MNEs. There will be no change for companies not affected by the Pillar Two rules. The QDMTT is levied in parallel to the existing corporate income tax. Meaning that in a first step, the tax burden is levied according to the existing rules on corporate taxation. In an additional second step for in-scope MNEs, the Global Anti-Base Erosion (GloBE) effective tax rate (ETR) is calculated by dividing the taxes (Covered taxes) with the tax basis (GloBE income) in line with the Pillar Two Model Rules. If the resulting GloBE ETR is below 15%, the QDMTT is levied on the difference between the ordinary tax burden and the 15% minimum tax rate.

The QDMTT, the IIR and the UTPR are levied by the Cantons. The ensuing proceeds will be shared between the Cantons (75% share) and the Federation (25% share). Nonetheless, this top-up tax is regulated at the Federal level and is therefore considered a Federal tax. The Swiss Federal Tax Administration will be the Competent Authority in the international context and will supervise the Cantonal Tax Administrations with regard to the execution.

In the case of multiple Constituent Entities in Switzerland situated in different Cantons, the QDMTT applies to those entities who cause the taxation below 15% and as a result the proceeds remain with the respective Cantons. The IIR is levied by the Canton of the Ultimate Parent Entity while the allocation of the UTPR amounts between the Cantons is still a topic of discussion. With that, the inter-cantonal tax competition shall be preserved as far as possible. There is still an incentive to provide a favorable tax landscape, as these Cantons with a low-tax rate are entitled to the top-up taxes of in-scope MNEs and they remain attractive for companies not in-scope of Pillar Two. Furthermore, they can use the additional proceeds from the top-up taxes at their discretion, e.g., in favor of locational measures. However, the additional income resulting from the BEPS 2.0 implementation will be subject to the existing principles of the national fiscal equalization scheme, which will not be adjusted. With regard to the Federal share of the top-up taxes, the potential tax revenues are appropriated as follows: after the additional required contributions into the national fiscal equalization scheme, the remaining amount should be used for measures increasing the attractiveness of the Swiss business location.

Locational measures

The dispatch provides some initial thoughts on measures in favor of the Swiss business location. As the global minimum tax will diminish the international tax competition in terms of corporate income taxes, other taxes may gain more attention. The dispatch lists the abolishment of the share issuance tax (which was rejected by the popular vote in February), the withholding tax reform (subject to a popular vote in autumn 2022) and the envisaged introduction of a tonnage tax as potential tax measures.

As mentioned above, a certain amount of the Federal share of the additional proceeds is appropriated to locational measures. In addition to the above listed tax measures, the following general areas are discussed among others:

  • Measures in the area of education, research and development (R&D) and innovation (including a reassociation to Horizon Europe)

  • Federal support of start-ups

  • Digitalization of the administration

  • Increase of the third country quota for skilled workers to mitigate skills shortage

Other fiscal and non-fiscal locational measures are at the sole discretion of the Cantons. The Federation does not intend to provide specific guidelines. However, the public consultation revealed that the Cantons would welcome some guidance by the Federation on this topic as they face several challenges in connection with the development of locational measures. The dispatch stipulates that any locational measures must meet the following criteria: (i) conformity with international law obligations; (ii) general accessibility (also to companies not in-scope of BEPS 2.0); and (iii) economical reasonableness. Any measures are further subject to the democratic process.

To analyze the effect of the BEPS 2.0 project on similar competitor jurisdictions and their R&D incentives, the Federation contracted an external report. The report mainly suggested to transform the R&D super deduction into a Qualified Refundable Tax Credit – an R&D credit that is paid regardless of the profit or loss situation of the company within a maximum of four years. Further measurers listed to be considered, are grants for certain (investment) activities in the context of R&D or ESG, such as the super deductions for energy-saving or environmentally friendly business assets (as applied in the Netherlands) or the promotion of sustainability initiatives of businesses (as applied in Singapore). The report also highlighted the direct fiscal promotion of innovation and environmental projects, in form of loans or subsidies, by EU Member States, which could also be a model for Switzerland.

Constitutional amendment in detail

The draft constitutional amendment will introduce two new articles to the Constitution. One article (Art. 129a of the Federal Constitution (FC)) is more of a general nature, intended to form the legal basis for the ordinary legislative procedure for the implementation of the BEPS 2.0 project. Contrary to the first draft amendment subject to public consultation, this legal basis is now explicitly limited to the introduction of BEPS 2.0 Pillar One and Pillar Two. Before, the provision could have also formed a legal basis for the implementation of any other future international tax development. Art 129a FC stipulates that for the implementation of a minimum tax as well as a taxation in market jurisdictions and if in the interest of the overall Swiss economy, the Federation can deviate from:

  • The universality, the uniformity as well as the ability to pay principles (Art. 127(2) FC)

  • The maximum tax rates as stipulated in Art. 128(1) FC

  • The procedural rules and the Cantonal share according to Art. 128(4) FC

  • The exception of the tax harmonization according to Art 129(2) FC

The second article (Art. 197 ciph. 15 FC) is a transitional provision, giving the Federal Council the competence to introduce the QDMTT, the IIR and the UTPR by way of temporary ordinances. It also provides the general principles of the ordinances, which – except for the inter-cantonal aspects – are in line with the Pillar Two Model Rules and consider the modalities of the implementation in other countries. They are described above in the section “Content of the proposal.”


The proposed regulation by the Federal Council respects the Swiss federalism on taxation, preserves the Cantonal tax competition and gives the Cantons the greatest possible leeway to take measures in favor of the business location.

Overall, the financial impact of this OECD project cannot be reliably estimated, as the rules leave much room for interpretation, the data basis is fragile and certain elements of the reform cannot be quantified (yet). However, a first impact estimation for the short-term impact results in additional tax revenues in the amount of CHF1b to CHF2.5b from the QDMTT.

The IIR and UTPR implementation in Switzerland could also lead to additional tax revenues, which cannot be quantified as it depends on the introduction of QDMTT, IIR and UTPR in other jurisdictions.


The Swiss Parliament will discuss this draft constitutional amendment and is expected to take a decision by the end of the year, which would then be subject to a public vote in June 2023. As mentioned above – by way of two temporary ordinances – the QDMTT, IIR and UTPR are intended to apply from 1 January 2024 onwards. The first of the two draft ordinances (containing the material aspects) is expected to be released in August for public consultation. Thereafter, the respective legal basis will be prepared through the regular legislative process without time pressure.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Ltd, Zurich
  • Daniel Gentsch
  • Thomas Semadeni
  • Katya Federspiel Alig
  • Alain Horat
Ernst & Young Ltd, Geneva
  • Ioseb Nutsubidze
Ernst & Young Ltd, Zug
  • Hartwig Hoffmann
  • Nina Roos
Ernst & Young Ltd, St. Gallen
  • Roger Krapf
Ernst & Young LLP (United States), Swiss Tax Desk, New York
  • Eric Duvoisin
Ernst & Young LLP (United States), Swiss Tax Desk, San Francisco
  • Stefan Ruest

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.