During its meeting of September 4, 2024 the Swiss Federal Council decided to bring the income inclusion rule (IIR) into force with effect from January 1, 2025. This international supplementary tax will complement the Swiss Qualified Domestic Minimum Top-up Tax (QDMTT) that already came into effect on January 1, 2024.

In 2023, the people and the cantons voted in favour of the Federal Council introducing the OECD/G20 minimum tax rate in Switzerland. The main aim is to prevent Switzerland from foregoing tax receipts in favour of foreign countries. The Swiss supplementary tax (QDMTT), which the Swiss Federal Council introduced in 2024, serves this purpose. During its meeting of September 4, 2024 the Swiss Federal Council decided to also bring the IIR into force in 2025. With this international supplementary tax, the profits of foreign subsidiaries of Swiss corporate groups, as well as those of Swiss based intermediate holding companies of foreign corporate groups, are taxed at 15%, provided the corporate group's global annual turnover amounts to at least EUR 750 million.

If Switzerland would not bring the IIR into force, other jurisdictions could tax these foreign profits in accordance with the OECD/G20 minimum taxation rules by applying the second international supplementary tax, the UnderTaxed Profits Rule (UTPR). The vast majority of EU member states, as well as the United Kingdom, Canada and Australia, are planning to apply the UTPR from 2025 onwards, following their introduction of both the IIR and the QDMTT in 2024.

By bringing the IIR into force, Switzerland can secure receipts which can then be used to strengthen the country's attractiveness as a business location. Moreover, the Federal Council will thereby provide legal certainty in Switzerland. In practice, the companies affected can be spared a multitude of tax procedures in jurisdictions that apply the UTPR.

Receipt estimates for the IIR involve a high degree of uncertainty. According to the Swiss Government they could, roughly speaking, amount to between CHF 500 million and CHF 1 billion. Whereby, based on the constitutional allocation key, between CHF 125 million and CHF 250 million would go to the Swiss Confederation and between CHF 375 million and CHF 750 million would go to the cantons.

No UTPR in Switzerland for the time being

The Swiss Federal Council has decided not to bring the UTPR into force for the time being, as it believes that the risks associated with such a move would outweigh the revenue potential of a UTPR. Moreover, the UTPR is subject to criticism from a legal standpoint. The Swiss Federal Council stated that when weighing up the interests at stake, it  relied on an expert opinion prepared by Prof. René Matteotti from the University of Zurich. In a press release issued the Swiss Federal Council states furthermore that the Swiss Federal Department of Finance will continue to keep a very close eye on international developments with respect to the implementation of the OECD/G20 minimum tax rate.

Those interested in the very interesting expert opinion as prepared by Prof. René Matteotti from the University of Zurich, can find that opinion here.

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