BEPS and Pillar Two: the global minimum tax

For decades, tax competition between states allowed large multinational groups to shift profits towards low-tax jurisdictions. The OECD’s BEPS project and its second pillar, Pillar Two, were created to put a limit on this dynamic by introducing a global minimum level of taxation. For Switzerland, traditionally attractive on the tax front, this represents a paradigm shift. Let’s look at what it means in concrete terms for groups operating in the country.

What the BEPS project is

BEPS stands for Base Erosion and Profit Shifting. It is the initiative through which the OECD and the G20 tackled the practices that allow multinational groups to artificially reduce their tax burden by shifting profits to where they are taxed least, often without any real economic activity. The project developed through a series of coordinated actions and led, in its most recent phase, to a reform structured around two pillars:

• Pillar One, which redistributes part of the taxing rights towards the countries where customers and markets are located;
• Pillar Two, which introduces an effective minimum level of taxation on the profits of large groups.

It is Pillar Two that has the most immediate and concrete impact for businesses.

The core of Pillar Two: the 15% minimum rate

The principle of Pillar Two is simple in substance: large multinational groups must be taxed, in every jurisdiction in which they operate, at an effective rate of at least 15%. If the effective taxation in a country falls below this threshold, the difference is recovered through a supplementary tax (top-up tax).

The regime does not apply to everyone, but only to groups that exceed a certain size: the reference threshold is a consolidated annual turnover equal to or above EUR 750 million. Small and medium-sized enterprises and purely domestic groups of limited size remain outside these rules and continue to be taxed under ordinary law.

How Switzerland reacted

Switzerland chose not to let the revenue from the top-up tax end up abroad. The logic of Pillar Two is in fact that of “communicating vessels”: if Switzerland does not levy the top-up tax on under-taxed groups, another country will. To avoid giving away tax revenue, the Confederation introduced a Swiss top-up tax that ensures the groups concerned reach 15% effective taxation by paying it in Switzerland.

This choice was put to the people, who approved the necessary constitutional basis, and the top-up tax entered into force from 2024. In practice, a large group active in Switzerland that, thanks to cantonal incentives, found itself below the 15% effective rate now pays the difference to the Swiss tax authorities, not to another state.

What changes for the groups concerned

For multinationals that exceed the threshold, the effects are concrete:

• erosion of the advantage of low-tax cantons: where the effective rate was below 15%, the benefit is neutralised by the top-up tax;
• new calculation and reporting obligations: the effective rate must be determined for each jurisdiction according to OECD rules, which do not coincide with the ordinary taxable base;
• greater compliance complexity: dedicated reporting, collection of consolidated data and coordination between the group’s entities in the various countries.

One frequently misunderstood point should be underlined: Pillar Two does not abolish tax competition, it shifts it. Since the minimum level is set at 15%, cantons with ordinary rates close to or above this threshold retain their attractiveness, and the competition now plays out on factors such as the quality of services, legal certainty and non-tax promotion measures.

A forward-looking view

The framework is evolving: the detailed rules, the safe harbour mechanisms and international coordination continue to settle. The groups concerned must monitor developments and check in good time whether they fall within the scope, because the obligations are triggered on the basis of consolidated data that must be prepared in advance.

How we work at SIH ONE

We help groups understand whether they fall within the scope of Pillar Two, estimate the impact of the top-up tax and structure their compliance, coordinating the Swiss profiles with the international ones. For businesses below the threshold, we verify that the cantonal incentives remain fully usable.

Is your group affected, or at risk of being affected, by the global minimum tax? Discover the services of our tax division and face Pillar Two with a clear picture.