By Davide Anghileri, University of Lausanne
Switzerland’s State Secretariat for International Finance (SIF) made public on 15 January the Swiss position on a long-term solution to the taxation of the digitalised economy. The Swiss announcement comes as the OECD is preparing a report, to be published in 2020, on how to best adapt the international corporate tax on taxing multinational groups to new digital business models.
In the Swiss government’s opinion, the OECD should update the corporate international tax and transfer pricing system with the aim to guarantee fair tax competition. Switzerland supports tax rules that both enable and promote innovation and sustainable competition and safeguard its tax receipts.
The SIF states that tax regulations should also be technology-neutral so as not to hamper or suppress innovation. Thus, any tax rules should be neutral regarding both competition and technology.
Moreover, the Swiss government believes that the introduction of a minimum tax restricts competition and can lead to additional burdens for companies.
Germany has been floating the idea of an internationally coordinated minimum tax on multinational group profits to better equalize the tax burdens placed on digital and non-digital multinational groups.
The taxation profits from digital economy should follow the principle of value creation as proposed in the 2015 OECD/G20 Base Erosion Profit Shifting (BEPS) report on Actions 8-10: Aligning Transfer Pricing Outcomes with Value Creation. Thus, profits are to be taxed where value is created.
In this way, incentives are created and locations are compensated for offering good framework conditions and enabling companies to produce efficiently. Functions performed, risks borne, and assets employed must be sufficiently taken into consideration.
Furthermore, the Swiss government believes that attention should be given to the avoidance of double taxation and over-taxation. In fact, the existing international tax system pursues this purpose, among other things, and thus promotes the international activities of companies. The network of double taxation agreements must be maintained and new solutions integrated into it.
In the opinion of the SIF, another important issue to address will be the termination of taxation gaps. Switzerland supports a comprehensive review of whether and, if so, how the rules for nexus and the allocation of profits should be adapted to digitalisation. In this respect, the allocated profits should be consistent with value creation and underlying economic activities.
Additionally, the final OECD report should give broad-based solutions to avoid unilateral measures and to support a consensual solution, the SIF said. To achieve an international consensus, it is also necessary to consult business representatives in a timely and comprehensive manner and to take account of their legitimate concerns.
Finally, the Swiss government maintains that the issues arising from the taxation of the digital economy should be found in long-term solutions. Switzerland is not planning to introduce interim measures such as the digital services tax proposed in the EU.
Such interim measures based solely on turnover in market areas can lead to double taxation and over-taxation and make it more difficult to achieve a global consensus for a definitive solution, the Swiss government argues.
Davide Anghileri
Davide Anghileri is a PhD candidate at the University of Lausanne, where he is writing his thesis on the attribution of profits to PEs. He researches transfer pricing issues and lectures for the Master of Advanced Studies in International Taxation and Executive Program on Transfer Pricing.
Anghileri, a Contributing Editor at MNE Tax, previously worked as a policy advisor to the Swiss government on BEPS issues.
Davide can be reached at [email protected].
Latest posts by Davide Anghileri (see all)
- Swiss government approves new law governing tax treaties - November 11, 2020
- EU states’ compliance with tax avoidance directives assessed in Commission report - August 26, 2020
- Italy clarifies VAT reporting obligations of online marketplaces - June 16, 2020
- EU blacklist: Cayman Islands added with other three jurisdictions - February 18, 2020
- Italy adopts digital services tax, notional interest deduction - January 8, 2020
Be the first to comment