Has the TRAF already served its time?
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Following the adoption of the Federal Act on Tax Reform and AHV Financing (TRAF) on 19 May 2019, it was assumed that the new corporate tax system complies with the tax rules of the Organisation for Economic Cooperation and Development (OECD). This is currently the case, but maybe not for much longer, because the OECD is developing a working plan with the aim of taxing international corporations globally.
The actual goal of the work plan was the correct taxation of tech companies such as Google or Facebook. The current international rules are no longer applicable to the digitalized and globalized business world. Facebook, for example, pays a large part of its taxes at the tax-favourable European headquarter in Ireland. In contrast to production goods, it is very difficult to assign digital services to states. Following objections by the US to "protect" US IT companies from the digital tax, the work plan is now being extended to all international corporations.
129 countries participated in the work plan, including all OECD countries including Switzerland. The OECD envisages two directions in the taxation of the profits of international companies. These are, on the one hand, taxation in the market countries instead of at the head office or production site and, on the other hand, global minimum taxation. These two plans were approved at the G-20 summit in Fukuoka (Japan) by the OECD finance ministers and can now be pursued further. A total solution should be worked out by the end of 2020. Many issues are still open and will now be addressed, such as dealing with loss-making companies and avoiding double taxation.
The plan is, that part of the consolidated profit will no longer be taxed at the headquarters of the production plant or the company, but in the market countries where products and services are purchased or where the user is based. For Facebook, this would mean that in countries where Facebook users are active, part of the profit tax would have to be paid.
The introduction of a global minimum tax rate is planned. If countries with attractive tax rates, e.g. Switzerland or Ireland, fall below the (still to be defined) minimum tax rates, the companies should be taxed by other states in addition to the global minimum rate.
As an export-oriented economy, Switzerland would not benefit from the approach of taxation in the market countries, as there would be a tax relocation to the sales countries. In view of the currently attractive corporate tax rates, Switzerland would also be one of the losers in terms of global minimum taxation. This would mean that Switzerland would lose its tax advantage as a location for business and would thus also - depending on the form of the reform - generate high tax revenues. Without Switzerland's tax advantages, some international companies would probably relocate their corporate headquarters to other countries - in the worst-case scenario this could mean the loss of thousands of jobs.
The tax reform seems to be unstoppable. But Switzerland can and must play its part in shaping it. However, Switzerland should ensure that the global minimum tax rate is set as low as possible and that profit taxes are mainly based on value added.
If the work plan is not implemented, there is a risk that various states will introduce innovations individually and uncoordinatedly on their own. Ultimately, this would be the greater evil.
