The Organisation for Economic Co-operation and Development (OECD), now working as the expanded OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), released on May 31 a program of work that, if it reaches fruition and is implemented by member nations, would fundamentally alter the longstanding rules that govern the international taxation of all large multinational entities (MNEs), not just those that might consider themselves “digital companies.”

The program of work calls for “a solution to be delivered in 2020,” a time frame the 129-member Inclusive Framework acknowledges is “extremely ambitious,” and would require “the outlines of the architecture” to be agreed to by January 2020.

The program of work, like the policy note released on January 29, 2019, and the public consultation document released February 13, 2019, describes the following two-pillar approach that could form the basis for consensus:

• The first pillar covers revised nexus and profit allocation rules, which in particular allocate additional profits to market jurisdictions (i.e. countries where the MNE sells its products to customers or has a considerable user base).
•  The second pillar deals with rules that would enable countries to locally tax profits, which are taxed at an effective rate below a determined minimum rate, in another country having the primary taxing right.

We provide you with a more detailed summary of the consensus consultation about the digital economy you find under the following Link.

The broad scope of the programme of work is aimed at all MNEs involved in cross-border transactions (i.e. not only internet corporations such as Google) with, potentially, a significant impact on Swiss MNEs, as also noted by the Swiss Secretariat for International Financial Matters as well as the Swiss president in the light of the G20 meeting in Japan, because:

• The first pillar would reduce incentives for Switzerland to develop a favourable legal/tax framework for MNEs.
• The introduction of minimum tax rates, under the second pillar, might restrict tax rate competition and could therefore lead to a higher tax burden for MNEs.

As mentioned, the work of the Inclusive Framework regarding the digitalisation of the economy will likely affect all businesses with cross-border operations and will require a great degree of technical attention. Therefore, it is highly recommended for Swiss companies to follow the technical work closely and/or engage with broader business groups that are doing so.

Transfer Pricing event

Later this year, when the discussion points are further crystalised, we will again organise a Transfer Pricing event during which we will discuss the impact the changes may have on Swiss MNEs. Interested to join the Transfer Pricing event? Email us to get an invitation.

Raoul Stocker - Partner, Business Tax Leader Zurich

Raoul Stocker is a tax partner with more than 15 years’ experience specifically in international tax litigation such as mutual agreement procedures and advanced pricing agreements. His focus lies on corporate tax planning, cross-border structuring of corporate transactions and businesses, transfer pricing as well as taxation of financial institutions. Raoul is also a lecturer of transfer pricing and tax law at the University of St. Gallen.

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Hans Rudolf Habermacher - Partner, Transfer Pricing Leader Switzerland

Hans Rudolf has over 17 years’ of experience in advising clients in Transfer Pricing concepts. He successfully engages with MNCs in various industries in the planning, implementation, documentation & defence of TP concepts. Further he has significant experience in the design and implementation of principal & licensing structures. He is also highly successful in filing and negotiating bilateral APA's (Advanced Pricing Agreements) and mitigating double taxation issues through MAP procedures.

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Arjan Oosterheert - Manager, Transfer Pricing

Arjan is a Manager in the Transfer Pricing team of the Zurich office and has an international corporate tax background. He predominantly advices his multinational clients on the Transfer Pricing aspects of the adjustments they make to their business models. Arjan is experienced in developing and implementing pragmatic Transfer Pricing policies, negotiating bilateral APA’s and preparing Transfer Pricing documentation. He has furthermore worked on a series of merger & acquisition transactions, including the related post merger integration projects.

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