Switzerland publishes draft Pillar Two ordinance for public consultation

September 2022

In brief

The Swiss Federal Council, on August 17, launched a public consultation concerning the draft ordinance laying out the material aspects of the Pillar Two implementation in Switzerland. Interested parties have until November 17 to submit comments to the Swiss administration.

Actions to consider: In addition to considering how the OECD’s Pillar Two Model Rules would impact their global operations, concerned multinationals have time to also consider how the Swiss draft rules could impact their business.


The draft Federal ordinance would govern the main aspects of the Pillar Two implementation in Switzerland during a transition phase that begins January 1, 2024. As anticipated, the ordinance foresees an OECD-compliant introduction of the GloBE Rules - namely, the introduction of a Swiss Top-up Tax in the form of a Qualified Domestic Minimum Top-up Tax (QDMTT), an International Top-up Tax in the form of an Income Inclusion Rule (IIR), and an Undertaxed Payments Rule (UTPR).

The draft ordinance directly references the GloBE Model Rules, including the respective Commentary and the Implementation Framework that is scheduled to follow. In addition, certain Swiss-specific regulations have been added that, e.g., address the allocation of the Top-up Tax amount to a group’s various Swiss companies/branches (also if they are located in different cantons).

Since the current draft is subject to public input (open through November 17, 2022), the ordinance still may be amended.

The draft ordinance is the first of two anticipated parts of the ordinance that the Swiss Federal Council should publish. The second ordinance, which is expected to be more detailed than the first, addresses procedural elements. Furthermore, it would include aspects such as which canton will levy the Top-up Tax, which entity will be required to pay the Top-up Tax, and how the Swiss Federal Tax Authorities will supervise the process.

The default effective date for the draft ordinance is January 1, 2024. However, the ordinance provides the Swiss Federal Council the discretion to postpone such implementation date should there be delays in the implementation internationally.

Further considerations

Overall, the Swiss approach for addressing the Pillar Two-related implementation challenges is by aligning with the Model Rules and related Commentary. This should indicate to taxpayers that the Swiss rules are intended to be OECD-compliant and thus be accepted internationally.

The Swiss QDMTT would apply to Swiss tax resident companies and branches if the Ultimate Parent Entity (UPE) records an annual turnover of at least EUR 750m. However, if the jurisdiction of a foreign UPE applies a lower Pillar Two threshold, such lower threshold with respect to the Swiss QDMTT also would apply in Switzerland to Swiss entities ultimately owned by such foreign UPE.

If a group has Swiss tax resident companies/branches in various cantons, the proceeds from the QDMTT are allocated among them following the causality principle. In other words, the QDMTT is allocated to the extent a particular company/ branch has ‘contributed’ to the Top-up Tax.

The IIR applies to non-Swiss tax resident companies and branches if the latter’s shareholder/head office is the Swiss UPE or a Swiss Intermediate Parent Entity (IPE), provided its foreign UPE records an annual turnover of at least EUR 750m. The IIR would be allocated to the respective Swiss UPE/IPE in conformity with the GloBE Rules.

Under the draft Rules, Switzerland would apply the UTPR for groups with low-taxed subsidiaries/branches if such group has a Swiss tax resident company or branch and provided the low-taxed income is not subject to an IIR. If a group has multiple Swiss tax resident companies/branches, then the UTPR would be allocated among them using the allocation methodology as per the GloBE Rules in analogy.

Switzerland plans to allow companies an exemption from the UTPR for a maximum of five years during their initial phase of international activity (as foreseen and defined in the GloBE Model Rules). However, this exemption shall not apply if Switzerland qualifies as the so-called Reference Jurisdiction, i.e., if the Swiss tax resident companies/branches – compared to other jurisdictions in which the group operates – on an aggregated basis have the highest value of tangible assets for the fiscal year in which the group originally comes within the scope of the GloBE Rules.

Under the draft Rules, all GloBE Rules – including the UTPR – would be implemented effective January 1, 2024. As a result, no delay is expected between the implementation of the QDMTT/IIR and the UTPR.

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Doug McHoney

Doug McHoney

International Tax Services Global Leader, PwC US

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