The timetable is ambitious. By the end of 2020, more than 130 countries in the OECD's Inclusive Framework are supposed to reach an agreement on new tax rules for multinational entities. Switzerland is also participating in these efforts. Over the next few weeks, public hearings on the proposals will take place at the OECD's headquarters in Paris.
The OECD project on taxing the digital economy has now moved well beyond the 2015 aims of the OECD and G20. The new tax rules for multinational entities affect not just purely digital business activities, but also entire economic sectors. Global and consensus-based measures should help to avoid a proliferation of national regulations.
On 31 May 2019, the OECD published a programme of work on the tax challenges arising from the digitalisation of the economy; the work is grouped into two pillars. The OECD's technical working parties are currently elaborating the details. As yet, no binding decisions have been reached.
Pillar 1: A higher share of consolidated profits should be allocated to market jurisdictions for taxation. Under the new rules, consolidated profits would also be taxed in jurisdictions where the company has no physical market presence.
Pillar 2: Using as yet undefined measures, a minimum tax rate for groups should be ensured. No decision will be made on the level of this rate until the technical details have been clarified.
Over the next few weeks, the OECD will hold two public hearings for interested parties from industry, academia and politics. The hearing on 21/22 November 2019 will focus on Pillar 1 and questions such as: How is "significant economic presence" to be defined? At what level of corporate turnover will the new rules start to apply? At what point is a company considered to be highly profitable? Are there exceptions for specific industry segments? What are the dispute resolution mechanisms? The hearing on 13 December 2019 will discuss Pillar 2 and questions such as: What profits are subject to the tax rate? Does a minimum tax rate apply per company, per country or worldwide?
And what about Switzerland?
Switzerland is working to ensure that taxation will, in principle, continue to apply at the place of the performance-related value creation, and that the share of profit to be allocated to the market jurisdictions remains in proportion to their share of value added, and hence moderate.
Switzerland is committed to tax sovereignty and fair tax competition, and considers that a binding minimum tax level generally hampers innovation and growth. Any minimum tax recommendations at international level must be moderate.
It is unclear what impact the new rules will have in practice, as the details have yet to be elaborated. However, it is to be expected that smaller, innovative and export-based economies with large numbers of profitable multinational entities – like Switzerland – will lose out on profit tax receipts.
The architecture of the proposals is to be defined by early 2020. A first set of binding decisions is due from the 130 countries in the OECD's Inclusive Framework in June of that year. The work is due to be completed by the end of 2020.