Switzerland to introduce IIR in 2025, but not UTPR
The Federal Council decided on 4 September 2024 that Switzerland will introduce the Income Inclusion Rule ("IIR") on 1 January 2025. The introduction of the Undertaxed Profit Rule ("UTPR") has been postponed until further notice.
Decision Federal Council
The Federal Council decided at its meeting on 4 September 2024 (media release: German/French/English) that Switzerland will bring the IIR into force with effect from 1 January 2025. This international top-up tax will complement the Swiss top-up tax (“QDMTT”) already introduced on 1 January 2024.
The Federal Council has also 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 Federal Council will continue to keep a very close eye on international developments with respect to the implementation of the OECD/G20 minimum tax rate.
Deloitte’s View
The Federal Council's decision had been expected following the discussions over the summer weeks but came now earlier than expected. This is to be welcomed, as it creates legal certainty at an early stage. The decision to introduce the QDMTT as early as 2024 was taken only a few days before the end of 2023, which led to a high degree of legal uncertainty for multinational groups. The decision to implement only the IIR for the time being is welcome. The UTPR has been criticized both nationally and internationally. In Belgium, for example, a US company has already filed a lawsuit against the UTPR.
Multinational groups headquartered in Switzerland with low-taxed (directly or indirectly held) subsidiaries and permanent establishments abroad will be subject to an international top-up tax on their profits in Switzerland from 1 January 2025. Specifically, US-based multinational groups with directly held holding companies in Switzerland and with low-taxed subsidiaries and permanent establishments abroad will also be subject to an international top-up tax in Switzerland. An intra-group sale of such participations from the Swiss holding company directly to the ultimate US parent company, for example, will no longer help to escape from top-up tax from 2025. Many EU member states will introduce the UTPR from 2025, which will tax the profits of such undertaxed subsidiaries.
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