OECD Minimum Tax Impact Study: Will expectations of additional tax revenue be met?

Setting the scenes

OECD Minimum Tax

With the minimum tax project, the OECD/G20 envisage that multinational groups with consolidated annual revenues of more than €750 million (group level) are subject to a minimum tax rate of 15% in each jurisdiction. If the tax rate in a jurisdiction is below 15%, the difference is subject to a top-up tax. Each jurisdiction can voluntarily decide whether it wants to introduce the OECD Minimum Tax rules unilaterally. If it does, however, it must fully comply with the OECD framework. This is verified by peer review.

The levying of top-up taxes is carried out in a three-step approach. Each jurisdiction can tax the difference up to 15% by means of a domestic minimum top-up tax. If a jurisdiction does not levy this tax, the jurisdiction of the ultimate parent entity (or an intermediary holding company) may tax the profits of directly or indirectly held foreign subsidiaries by means of a cross-border top-up tax based on the Income Inclusion Rule ("IIR"). If the jurisdiction of the ultimate group company has not introduced an IIR, all other jurisdictions in which the group has subsidiaries can tax the undertaxed profits using the Undertaxed Profit Rule ("UTPR").

To ease the administrative burden on groups and tax administrations in the initial phase, the OECD framework includes temporary safe harbour rules for the years 2024-2026. If one of three tests is met in a jurisdiction, the group is shielded from the OECD Minimum Tax. Once these temporary rules expire, the group is subject to full OECD Minimum Tax calculation in the respective jurisdiction. The OECD is currently discussing whether this temporary relief should be made permanent in some form.
 

Switzerland

In a public vote around 80% of the electorate and all cantons approved the adoption of the OECD Minimum Tax in Switzerland. The Federal Council then introduced the OECD Minimum Tax in two stages: on 1 January 2024 (domestic top-up tax), and 1 January 2025 (cross-border top-up tax under the IIR). For political reasons and legal certainty considerations, the Federal Council has refrained from introducing cross-border top-up tax under the UTPR for the time being.

The Federal Council estimates at a “few hundred” (listed and unlisted) Swiss groups and a “few thousand” foreign groups with subsidiaries in Switzerland will be affected. Moreover, the Federal Council cautiously estimated additional annual tax revenue of CHF 1-2.5 billion in the first years.

Key Findings

This study shows that although most of the listed Swiss groups analysed are subject to the OECD Minimum Tax framework based on their consolidated revenues, one-third do not owe any top-up taxes in 2024, neither in Switzerland nor abroad. The reasons for this vary, but among others, the groups benefit from temporary safe harbour rules.

The top-up taxes of those groups impacted amounted to CHF 243.2 million, payable both in Switzerland and other tax jurisdictions. One single group contributed CHF 189.0 million to the total, which is equal to three-quarters.

While it is not possible to break down the total into top-up taxes payable in Switzerland and other jurisdictions, Deloitte Switzerland estimates the amount payable in Switzerland was under CHF 200 million. Based on the information currently available, it is likely that the expected additional tax revenue of CHF 1-2.5 billion in the first few years may not be achieved.

At the moment, top-up taxes are only relevant for a small proportion of listed groups. Many benefit from the temporary safe harbour rules. Overall, the revenue from top-up taxes in 2024 is likely to be well below the Federal Council’s original estimates.

The temporary safe harbour rules are not permanent and the picture could change after 2026. Whether the revenue from top-up taxes will increase in the coming years also depends on whether other countries will introduce the OECD Minimum Tax. In addition, from 2025 Switzerland will also be able to levy top-up taxes on foreign subsidiaries of Swiss groups that do not pay top-up taxes in their home country because the country in question does not participate in the OECD Minimum Tax. This could lead to higher tax revenues.

Study methodology

In this study, Deloitte Switzerland analyses the financial impact of the OECD Minimum Tax on the 50 largest, listed Swiss groups and the potential additional tax revenues for Switzerland. Since some groups have a financial year that varies from the calendar year, this study analyses slightly less than fifty groups.

Only publicly available data and information from audited financial statements (IFRS, US GAAP), investor presentations and official statements by CFOs were used.

The study focuses on the following main questions:

• Is the group due to its size in scope of the OECD Minimum Tax?
• What amount of top-up tax has the group to pay in the 2024 financial year (absolute view) and how is this amount split between Switzerland and abroad?
• To what extent do top-up taxes increase the group's effective tax rate (relative view, ceteris paribus)?
• Based on a rating, how financially impacted is the group by the OECD Minimum Tax?
• Are there trends as to why groups in scope of the OECD Minimum Tax do not owe top-up taxes?
• Is there a trend that certain industries are more impacted than others?

Due to the lack of disclosure requirements for unlisted Swiss groups and Swiss subsidiaries of foreign groups, no publicly accessible data and information are available for two categories of affected groups. Consequently, no analysis can be carried out for these two groups. However, Deloitte Switzerland takes the position that certain findings from the analysis of listed Swiss groups in this study can be transposed to unlisted Swiss groups.

The following methodology was used to determine the impact for each group (rated as low, medium, or high):