Taxing the digital economy

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.    

Grafik_digitale Besteuerung_12.19_e

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 unilateral measures. Such unilateral actions would hinder innovation and economic growth, and create legal uncertainty. It is planned for the new rules not only to affect large international digital companies as originally forseen, but the entire, increasingly digitalised international economy. 

Programme of work OECD

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 residence to market jurisdictions. The OECD's technical working parties are elaborating the details. 

Pillar 2: Minimum taxation rule. In concrete terms: Through measures yet to be defined, 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. 

In October 2020, the OECD decided to continue the work due to numerous outstanding issues. First decisions are expected to be taken in mid 2021.

And what about Switzerland?

Switzerland prefers long-term, consensus-based multilateral solutions rather than a multitude of uncoordinated 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 income tax receipts.

Further information 

Last modification 20.10.2020

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