Switzerland likely to change its constitution because of Pillar Two global minimum tax plan

By Peter Hongler, Professor of Tax Law, University of St. Gallen, and Counsel, Walder Wyss Ltd., St. Gallen/Zurich

Switzerland will likely change its constitution because of Pillar Two—a proposal to address global profit shifting by imposing a global minimum tax of at least 15%—and took its first step in that direction by opening a public consultation on the OECD/G20 minimum tax plan for multinationals on March 13.

The most recent proposal of the constitutional amendment basically says that if in line with international developments, and if necessary for safeguarding the interests of the economy as a whole, Switzerland may deviate from its equality principle and the ability-to-pay principle (meaning Switzerland may introduce a specific tax regime for large MNEs [i.e. min. 15% tax rate]). All taxpayers are equal, but some are more equal than others!

I do not see the equality principle as a major concern but more the rule of law. Pillar Two depends to a large extent on international accounting standards with no democratic approval.

Two main concerns remain: the definition of “other comprehensive income” and the requirements for consolidation and, therefore, for the question of whether an MNE is in scope or not.

Both questions will a have a significant revenue effect but are, to a large extent, left to international standard setters—at least in the model rules’ current form and the recently published Commentary of the OECD/Inclusive Framework.

Let’s hope for institutional change—otherwise international tax policy will become even more confusing.

• Peter Hongler is a professor of tax law at University of St. Gallen and of counsel with Walder Wyss Ltd in Zurich.