Domestic implementation in Switzerland: Road to the IIR

Implementing the GloBE Rules in Switzerland required a national referendum to approve the necessary constitutional amendment for introducing Pillar 2 through a temporary ordinance. On 18 June 2023, the constitutional amendment was approved by referendum, allowing for the introduction of top-up taxation in the form of an IIR, a UTPR, and a QDMTT. Over the next years, the Swiss parliament will replace the ordinance with a federal law.

On 22 December 2023, the Swiss Federal Council decided to implement the QDMTT effective 1 January 2024. At that time, the introduction of the IIR and UTPR was to be decided later. On 4 September 2024, the Swiss Federal Council confirmed the implementation date for the IIR as 1 January 2025, while the implementation of the UTPR is on hold for the time being.

Under the IIR, the ultimate parent entity (UPE) with a qualified IIR generally has the first right to impose a top-up tax on a low-taxed constituent entity (LTCE). An LTCE is an entity located in a jurisdiction where the effective tax rate (ETR) under GloBE is below 15%. Essentially, the IIR ensures that Swiss MNE groups’ foreign subsidiaries and intermediate holding companies of foreign MNE groups are taxed at 15%, provided the MNE group’s annual revenue is at least EUR 750 million. The UTPR acts as a backstop rule when an entity within an MNE group is not taxed under a QDMTT or IIR. Without a QDMTT or IIR, other jurisdictions could tax these foreign profits according to the GloBE rules by applying the UTPR. By enacting the IIR, Switzerland continues to uphold its attractiveness as a business location. Notably, the United Kingdom, Canada, Australia, and most EU member states also plan to apply the UTPR from 2025 onwards.

Next steps

While the implementation of the IIR provides legal certainty in Switzerland, it also adds an additional layer to consider when assessing the impact of the GloBE Rules. Furthermore, groups not yet in scope of Pillar 2 should still review their Swiss tax position, as the transition rules of Pillar 2 apply without limitation to all groups until they become subject to the GloBE Rules. Therefore, closely analysing the Swiss tax position during the transition period is crucial to avoid an unfavourable entry position once a group falls within the scope of Pillar 2.

Should you have any questions in the meantime, please contact your regular trusted contact at Loyens & Loeff.