Corporate Tax

Switzerland helps pioneering OECD corporate tax treaty

US Secretary of State Antony Blinken, right, accompanied by Secretary General of the Organization for Economic Cooperation and Development (OECD) Mathias Cormann, Australia, at the OECD headquarters in Paris. Copyright 2021 The Associated Press. All rights reserved

Despite its reservations, Switzerland announced on Thursday that it would introduce a global minimum corporate tax. Groundbreaking negotiations at the Paris-based Organization for Economic Co-operation and Development (OECD) resulted in consensus on this issue.

This content was published on July 1, 2021 – 8:45 p.m.

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A statement by 130 OECD countries on Thursday approved a tax rate of at least 15% and higher taxation of the profits of the largest multinationals in countries where the profits are made. Only nine nations, including Ireland, have made a decision.

“It is the most important international tax treaty in a century,” said French Finance Minister Bruno Le Maire.

In Washington, Federal Finance Minister Olaf Scholz declared the race to the bottom in the tax competition over. “It’s a really big breakthrough and it’s going to change everything.”

Scholz said the next step is to ensure that tax officials from the group of 20 major economies approve the plan at their July 9-10 meeting in Venice, following a similar move by the G7 last month.

The OECD estimates that a minimum global corporate tax of at least 15% could generate around $ 150 billion in additional global tax revenue annually. The aim is to clarify any open questions by October 2021 and to work out a roadmap for implementation.

Listen to small countries

In a separate statementexternal link, the Federal Department of Finance emphasized that the interests of small innovative countries must be explicitly taken into account in the final formulation of the rules.

The OECD member countries must also apply the new rules uniformly, according to the Swiss declaration. “As far as the minimum tax is concerned, the solution adopted must be balanced in terms of tax rate and tax base,” said the ministry.

According to the same source, the potentially affected companies in Switzerland had emphasized the importance of a multilateral agreement. Many countries announced that they would go it alone should an OECD solution fail.

Long way to go

There is a long way to go before a global minimum tax becomes a reality. Each of the 130 nations, including Switzerland, must translate the OECD’s two-pronged plan into law.

The Federal Ministry of Finance wants to submit proposals to the government by the first quarter of 2022 in order to ensure the attractiveness of the Alpine country as a business location. Switzerland is home to a huge constellation of multinational companies operating in strategic sectors.

Domestic tax base erosion and profit shifting by multinational corporations exploiting gaps and mismatches between tax systems in different countries cost governments an estimated $ 100-240 billion in lost corporate taxes, according to the OECD.

US President Joe Biden, who advocated a worldwide minimum corporate tax, welcomed Thursday’s decision. “Multinational corporations will no longer be able to pit countries against each other to lower tax rates and protect their profits at the expense of public revenues.” he said.

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