On 9 October 2019, the OECD released a proposal from the OECD Secretariat that aims “to advance international negotiations to ensure large and highly profitable Multinational Enterprises, including digital companies, pay tax wherever they have significant consumer-facing activities and generate their profits.” In this tax blog we summarize the OECD proposal and touched upon the impact on Swiss businesses.

The proposal is part of the ongoing work to develop a consensus-based solution to the tax challenges arising from the digitalisation of the economy, which is focused on two “pillars” set forth in a programme of work released by the OECD on 31 May 2019:

• Pillar one: Revising nexus and profit allocation rules to address how taxing rights should be allocated among countries and, in particular, to market countries; and
• Pillar two: A global anti-base erosion proposal to strengthen countries’ ability to tax profits where income is locally subject to a low effective rate of tax.

The proposal relates to pillar one, and is based on the work of the G20/OECD Inclusive Framework on BEPS. It aims to bring together common elements of different proposals from member countries into a single “Unified Approach". The proposal provides a high-level description of this approach.

Under the proposal, some profits, and the corresponding taxing rights, of multinational enterprises (MNEs) with consumer-facing businesses would be reallocated to jurisdictions in which these MNEs have their markets, ensuring that MNEs would also be taxed in jurisdictions in which they conduct significant business but do not have a physical presence. There would be new “nexus” rules on where tax should be paid, and new “profit allocation” rules on what portion of profits should be taxed. More detailed information and further comments can be found here.

The proposal is open for public consultation (until 12 November 2019) which seeks comments on a number of policy issues and technical aspects of the proposal. A public consultation meeting will be held on 21 and 22 November 2019 at the OECD conference center in Paris.

A separate public consultation will be launched on pillar two, with the consultation document expected to be released in early November 2019.
The programme of work aims to reach a consensus-based solution on both pillars by the end of 2020.

Impact for Swiss businesses

The Unified Approach would affect a large number of Swiss businesses and will require a great degree of technical attention. Therefore, it is highly recommended for companies to, already at this stage, closely follow the developments and to initiate discussions regarding the impact of the proposals on their businesses.

Key Contacts

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.

Email

Peter Brülisauer - Partner, International Tax

Peter is a tax partner with extensive experience in advising multinational companies on tax matters. This includes corporate restructuring, acquisition, finance restructuring, IP- and R&D-planning, cross-border tax planning, tax effective supply chain management as well as function and risk allocation within multinational groups. He also specialises in permanent establishment (PE) planning as well as profit attribution between PEs. Peter is lecturer in national and international taxation at the University of St. Gallen and a frequent speaker at tax conferences. He has a PhD in Law, University of St. Gallen and is Swiss Certified Tax Expert.

Email

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.

Email 

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.

Email