Digitalisation is changing the economy and many business models. Consequently, the Organisation for Economic Co-operation and Development (OECD) is preparing proposals as to how corporate taxation can be adapted to the new developments in the longer term. Switzerland is actively involved in this work. The final report is due at the end of 2020.
The OECD published a programme of work on the tax challenges arising from the digitalisation of the economy on 31 May 2019. Global and consensus-based measures should help to avoid a proliferation of national regulations. Such unilateral action would hinder innovation and economic growth, and create legal uncertainty. The new rules should affect not only large international digital companies as originally planned, but the entire, increasingly digitalised international economy.
The OECD's programme of work proposes solutions based on two pillars.
Pillar 1: Modification of the profit allocation mechanism and the nexus rules for establishing tax liability. In concrete terms: 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, leading to a shift in tax receipts from large groups' states of domicile to market jurisdictions. The OECD's technical working parties are elaborating the details.
Pillar 2: Minimum taxation rule. In concrete terms: Using as yet undefined measures, a minimum tax rate for groups should be ensured. The OECD's technical working parties are elaborating the numerous technical details. No decision will be made on the level of this rate until the technical details have been clarified.
The architecture of the proposals is to be defined by early 2020.
The final report is due at the end of 2020.
And what about Switzerland?
Switzerland prefers long-term, broad-based multilateral solutions rather than a multitude of confusing national measures.
Switzerland is working to ensure that taxation will, in principle, continue to apply at the place of 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 – like Switzerland – will lose out on profit tax receipts.
Last modification 05.12.2019