Introduction: what is OECD Pillar Two
Pillar Two of the OECD/G20 Inclusive Framework on BEPS is a set of international tax rules designed to ensure that large multinational groups pay a minimum 15% tax on all their profits, regardless of the jurisdiction in which they operate.
The objective is to counter harmful tax competition between states and base erosion and profit shifting (BEPS). The rules, known as GloBE Rules (Global Anti-Base Erosion), apply to groups with annual consolidated turnover of EUR 750 million or more in at least two of the four preceding fiscal years.
Switzerland, home to numerous holding companies and European coordination centres, is particularly affected by this reform. Many cantons — such as Zug, Nidwalden, Schwyz and Vaud — have historically offered effective tax rates well below 15%. The introduction of the supplementary tax represents a structural change in the Swiss tax landscape.
The Pillar Two framework: three mechanisms
The GloBE Rules provide three complementary mechanisms to ensure the 15% minimum taxation:
QDMTT — Qualified Domestic Minimum Top-up Tax
The qualified domestic minimum top-up tax (in Switzerland: Ergänzungssteuer) is collected by the state where the undertaxed entity is located. If a Swiss entity of a multinational group has an effective tax rate (ETR) below 15%, Switzerland itself collects the difference. This mechanism takes priority: if Switzerland applies a compliant QDMTT, no other state can collect the top-up.
IIR — Income Inclusion Rule
The income inclusion rule operates at the level of the group's parent company. If a controlled entity in another jurisdiction is taxed at less than 15% and that jurisdiction does not apply a QDMTT, the parent company's state collects the top-up. In practice, if a Swiss holding controls a subsidiary in a state that has not introduced Pillar Two, Switzerland collects the IIR.
UTPR — Undertaxed Profits Rule
The undertaxed profits rule is a backstop mechanism: if neither the QDMTT nor the IIR capture the undertaxation, other states in the group can collect the top-up proportionally to the economic activities (employees and tangible assets) in their territory.
Switzerland chose to introduce only the QDMTT (Ergänzungssteuer) from 2024, and the IIR from 2025. The UTPR has not yet been implemented and its introduction is under discussion.
Swiss implementation
Switzerland adopted a two-phase approach for Pillar Two implementation:
Popular vote (18 June 2023)
The Swiss people approved by 78.5% the constitutional amendment (Art. 129a Federal Constitution) authorising the Confederation to introduce a supplementary tax. Popular approval was necessary because the Swiss tax system is based on cantonal sovereignty: the supplementary tax is an exception to this principle.
Ergänzungssteuer from 1 January 2024
The Ordinance on OECD Minimum Taxation (OImMin) entered into force on 1 January 2024, implementing the QDMTT. In-scope groups must calculate the ETR for each jurisdiction in which they operate; if the Swiss ETR is below 15%, the supplementary tax applies.
IIR from 1 January 2025
The Income Inclusion Rule (IIR) entered into force on 1 January 2025. Swiss holding companies must now verify whether their foreign entities are taxed below 15% in jurisdictions that do not apply a compliant QDMTT — and if so, pay the top-up in Switzerland.
Definitive federal law (in preparation)
The current legal basis is a Federal Council ordinance. A definitive federal law (Minimum Tax Act) is being drafted and should replace the ordinance by 2026–2027, consolidating the rules and clarifying practical aspects such as safe harbours and reporting.
The Ergänzungssteuer: mechanism and calculation
The Swiss supplementary tax (Ergänzungssteuer) is the core of the Pillar Two implementation. Here is how it works:
| Mechanism | Scope | Rate |
|---|---|---|
| QDMTT (supplementary tax) | Swiss entities of MNE groups with turnover ≥ EUR 750m | Top-up to 15% ETR (variable) |
| IIR (income inclusion) | Swiss holdings with undertaxed foreign subsidiaries | Top-up to 15% ETR of subsidiary |
| Transitional safe harbour | Jurisdictions with qualifying CbCR | Exemption from detailed calculation until 2026 |
The ETR calculation follows GloBE rules: the numerator is covered taxes calculated according to applicable accounting standards; the denominator is GloBE income, which may differ from Swiss taxable income. Specific adjustments exist for deferred taxes, stock options and the substance-based income exclusion (SBIE).
The SBIE excludes from the top-up calculation a portion of income proportional to real economic presence: 5% of the book value of tangible assets + 5% of payroll costs (with higher transitional percentages in the initial years). This mechanism rewards multinationals with genuine operational presence in Switzerland.
Impact on Swiss holding structures
Switzerland hosts approximately 24,000 holding and international structures. Pillar Two has different implications depending on the structure:
Pure holding companies (main activity: holding participations)
Holdings with no significant operational activity in Switzerland will have limited SBIE (few tangible assets, few employees). If the cantonal ETR is below 15%, they will have to pay significant supplementary tax. However, dividends and capital gains from qualifying participations generally remain excluded from GloBE income.
Coordination centres and IP boxes
Structures benefiting from preferential tax regimes (cantonal patent box, R&D super-deduction) with effective ETR below 15% will see their net advantage reduced. The supplementary tax will fill the gap to 15%, making sub-15% regimes less attractive — but not eliminating them, as the top-up stays in Switzerland.
Principal companies and regional centres
Structures with significant operational presence (employees, real estate, machinery) will benefit from the SBIE, which can reduce or eliminate the top-up. For these entities, the Pillar Two impact is often limited or nil if economic substance is adequate.
Swiss competitiveness
Paradoxically, Pillar Two could strengthen Swiss competitiveness: since the top-up is collected by Switzerland itself (QDMTT), revenues remain in the country. Furthermore, Switzerland offers non-tax advantages (stability, infrastructure, human capital, bilateral agreements) that remain unchanged.
Adaptation strategies
Many multinationals are reorganising their structures to maximise SBIE (increasing operational substance in Switzerland), reduce differences between Swiss tax base and GloBE income, and leverage Qualified Refundable Tax Credits (QRTC) for R&D and investment.
Revenue distribution
Art. 197 No. 15 of the Federal Constitution sets out how supplementary tax revenue is distributed between Confederation and cantons:
| Recipient | Share | Estimated revenue (annual) |
|---|---|---|
| Cantons (canton of entity's seat) | 75% | CHF 1.1–1.9 billion |
| Confederation | 25% | CHF 0.4–0.6 billion |
| Total estimated | 100% | CHF 1.5–2.5 billion |
Cantons with a high concentration of multinationals (Zug, Basel-Stadt, Vaud, Zurich) will receive most of the revenue. Discussion is ongoing on whether to use these proceeds to reduce other taxes, fund infrastructure or feed into the fiscal equalisation system.
Compliance and reporting obligations
In-scope groups must fulfil a range of reporting and documentation obligations:
Key obligations
- GloBE Information Return (GIR): annual return with data on all group entities by jurisdiction, including ETR, GloBE income, covered taxes and SBIE. Must be filed within 15 months of the fiscal year-end (18 months for the first year).
- ETR calculation by jurisdiction: requires conversion of IFRS/US GAAP accounting data into GloBE income and covered taxes, with adjustments for deferred taxes, stock-based compensation and intra-group transactions.
- SBIE documentation: groups must document tangible assets and payroll costs by jurisdiction, with reconciliation to statutory and consolidated financial statements.
- Transitional safe harbour: for jurisdictions where the ETR from the CbCR (Country-by-Country Report) is ≥ 15%, the group can apply a transitional safe harbour and avoid the detailed GloBE calculation. This simplifies compliance in the initial years (until 2026).
- Coordination with cantonal authorities: the supplementary tax is administered by cantons (with federal oversight). Groups must interface with the tax administration of the canton of seat for returns, payments and assessments.
Practical tips for CFOs and advisors
- Immediately verify whether your group exceeds the EUR 750 million consolidated turnover threshold. If so, you are in scope from 2024 — even if the Swiss ETR is already above 15%.
- Invest in data: calculating GloBE income requires granular accounting data by entity and jurisdiction, often not available in current ERP systems. A data readiness project is essential.
- Assess the SBIE impact: if your Swiss entity has significant operational substance (employees, tangible assets), the SBIE can reduce or eliminate the top-up. Document substance carefully.
- Leverage the transitional safe harbour: if your CbCR shows an ETR ≥ 15% for Switzerland, you can avoid the detailed GloBE calculation until 2026. But prepare for when the safe harbour expires.
- Monitor OECD developments: GloBE rules are continuously evolving (Administrative Guidance). Switzerland periodically updates the OImMin to incorporate international changes.
- Use AccountEX to track accounting for Swiss group entities and generate the data required for GloBE calculations and GIR filings in an automated and auditable manner.
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