[World Tax News] Switzerland Introducing Pillar 2 Global Minimum Tax from 01-01-2024

Editorial Team – [2023] 157 taxmann.com 694 (Article)

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week.

1. Switzerland introducing Pillar 2 Global Minimum Tax from 01-01-2024

The Federal Council decided to begin levying the supplementary tax in Switzerland from January 1 2024. This will prevent erosion of the tax base in favour of other countries. The Federal Council will decide on other OECD/G20 regulatory framework elements later.

On June 18 2023, a significant majority of the people and the cantons voted in favour of a special tax regime for large corporate groups. The Federal Council was mandated to temporarily implement the OECD/G20 minimum tax rate through an ordinance.

The transitional provision in the Federal Constitution provides for a supplementary tax in this regard. Within six years of the ordinance entering into force, the Federal Council must submit a bill to Parliament that replaces the Minimum Taxation Ordinance.

The minimum tax rate will be implemented as a national supplementary tax. With this supplementary tax, Switzerland will ensure a minimum domestic tax rate of 15% for large multinational enterprises whose turnover exceeds EUR 750 million. This will prevent the erosion of the Swiss tax base in favour of other countries.

The Federal Council applied the following guiding principles to the implementation of the minimum tax rate in Switzerland:

(a) International compatibility:

The Swiss regulations should be accepted internationally in order to provide Swiss-based businesses with the greatest possible legal certainty. For this purpose, the ordinance must be in line with the OECD/G20 regulations.

(b) Preserve Switzerland’s economic interests:

Where explicitly permitted or provided for, in the OECD/G20 regulations, room for manoeuvre and voting rights should be used in the interests of the Swiss location.

(c) Avoid administrative hurdles:

The administrative burden for businesses and cantonal tax authorities should be kept as low as possible.

The proposed design of the national supplementary tax met with broad acceptance in principle during the consultation phase. However, the Federal Council made changes and additions to consider the results of the consultation.

It also observed that the prerequisites for putting the supplementary tax into force in Switzerland with effect from January 1 2024, have been met, in particular now that the vast majority of EU states and other Western industrialized nations such as the United Kingdom plus South Korea have opted to implement the regulations as of the same date. By contrast, the Federal Council has decided to initially refrain from applying the international supplementary tax rules IIR and UTPR.

Source: Press Release by the Swiss Federal Council

2. South Korea is set to enhance the threshold limit for capital gains on listed shares

South Korea’s Ministry of Economy and Finance has set out to give relief to their taxpayers by increasing the threshold limit of capital gain on listed shares for share transfer after January 1, 2024.

Presently, persons holding shares valued at over KRW 1 billion in a single company are categorized as large shareholders and consequently liable to pay taxes on capital gains from share transfers. The applicable tax rates for long-term capital gains range from 22% to 27.5% and a fixed rate of 33% for short-term capital gains.

However, commencing January 1, 2024, this threshold will be raised to KRW 5 billion.

Source: Legislative and administrative notice

3. US releases Draft Form for Corporate Alternative Minimum Tax

The US Internal Revenue Services (IRS) has released a preview of Form 4626 – Alternative Minimum Tax—Corporations. The Corporate Alternative Minimum Tax (CAMT), established by the Inflation Reduction Act, enforces a 15% minimum tax on the adjusted financial statement income (AFSI) of big companies starting in taxable years after December 31, 2022. CAMT typically affects large corporations with an average annual financial statement income surpassing USD 1 billion.

This form has been segregated into 5 parts:

(a) Part I seeks details for Applicable Corporation Determination (Net Income or loss as per Applicable Financial Statements followed with certain adjustments)

(b) Part II relates to Corporate Alternative Minimum Tax and its computation

(c) Part III seeks information on adjustment for certain taxes

(d) Part IV relates to Alternative Minimum Tax—Corporations Foreign Tax Credit

(e) Part V seeks information of the Members of a Controlled Group Treated as a Single Employer and Foreign-Parented Multinational Group (FPMG) Members Taken Into Account in “Applicable Corporation” Determination

Source: Draft Form for Alternative Minimum Tax Corporations