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Post Pillar Two: the GloBE compliance lifecycle in Switzerland

A photo CLaudia
Claudia Pirot

Director, Tax Services | EY Switzerland

8 minute read 19 Dec 2024
Related topics
Tax
Global tax reform

Multinationals will need to keep an eye out and prepare for the new compliance landscape that unfolds as Pillar Two becomes a reality.

In brief

  • The implementation of Pillar Two measures brings a number of new obligations that in-scope groups will need to address.
  • Compliance obligations involve various forms and filings, with different frequencies and due dates and specific requirements for each jurisdiction.

Pillar Two introduces unprecedented changes to the global tax system, specifically affecting large multinational enterprises (MNEs) operating within the reformed international tax framework. Pillar Two also comes with a significant increase of compliance and reporting requirements. This necessitates substantial adjustments to financial reporting and tax compliance processes. It is therefore crucial for businesses to anticipate Pillar Two compliance obligations in a timely manner and to plan ahead.

This article sets out an overview of the new Pillar Two compliance elements that in-scope groups need to consider when assessing and preparing for compliance with the Global Anti-Base Erosion Model Rules (GloBE).

Pillar Two implementations

Approved in December 2021 by 141 jurisdictions participating in the BEPS Pillar 2 project, the GloBE rules provide for a global minimum tax of 15%, applicable to MNEs with a global turnover of €750m or more in two out of four fiscal years before the relevant tax year. The new rules consist of:

(1) the Income Inclusion Rule (IIR), which provides for the jurisdiction of the group’s ultimate parent entity (UPE), or sometimes an intermediate parent entity, to collect an allocation of the top-up tax according to its ownership interest; and

(2) the Undertaxed Profits Rule (UTPR) (formerly known as the ‘Undertaxed Payments Rule’), which is intended to apply as a backstop if low-taxed income is not fully collected under the IIR and which can be applied in the jurisdictions of fellow group members through denials of deductions as well as the imposition of charges.

However, where a jurisdiction has implemented a Qualified Domestic Minimum Top-Up Tax (QDMTT), the top-up tax should first be collected in that local country before applying the IIR or UTPR.

The rules will be effective starting for fiscal years beginning on or after 31 December 2023 (for QDMTT and for IIR) for EU Member States and certain third country jurisdictions. Switzerland has decided to introduce a QDMTT as of 1 January 2024 and the IIR as of 1 January 2025, whilst the application of the UTPR is delayed indefinitely. To monitor latest developments in jurisdictions related to the implementation of Pillar Two rules, access the EY BEPS tracker.

For many MNEs, compliance with the new tax filings will be necessary for the 2024 tax year. Complying with Pillar Two obligations, including the GloBE Information Return (GIR) by each constituent entity (CE) or a designated filing entity, is required before 30 June 2026 for calendar-year taxpayers. A QDMTT local tax return filing will likely also be needed in jurisdictions where a QDMTT is in place and may need to be filed before 30 June 2026. In addition, many jurisdictions have introduced a mandatory Pillar Two registration requirement with different deadlines and processes. 

The GloBE compliance lifecycle in Switzerland

There are four new compliance requirements that require special attention.

1.    Registration

There is an increasing number of jurisdictions that have introduced a mandatory Pillar Two registration or notification to identify the entity that will be responsible for the Pillar Two related filings in the relevant jurisdiction. The rules on how such notification needs to be filed, the deadline and possible sanctions for non-compliance vary per jurisdiction. Such registration is normally required one time unless there is a structural change.

In Switzerland, the registration of the Swiss tax resident lead CE (as determined in accordance with the Swiss one-stop-shop rules) of an MNE subject to the GloBE rules needs to register itself within the information system provided by the Federation, called OMTax, by 30 June 2026 (for calendar year MNEs). OMTax is available as of 1 January 2025.

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2.   Local QDMTT/IIR/UTPR returns

The operation of tax return filing and payment obligation rules is left to the determination of each implementing jurisdiction and is generally expected to be in line with those currently required under that jurisdiction’s existing tax filing and payment procedures. While most jurisdictions follow the GIR filing deadlines also for QDMTT, IIR und UTPR returns, in some jurisdictions a fiscal year 2024 QDMTT return must already be filed in Q3 of calendar year 2025 (e.g., Belgium).

 

In Switzerland, CEs being part of an MNE subject to the GloBE tax rules will be required to file a QDMTT return. The return will include all the relevant data of all Swiss CEs of the MNE (that are not part of a separate sub-group for GloBE legal entity classification reasons). The first year QDMTT return is to be filed by the lead entity via OMTax by 30 June 2026 (for calendar year MNEs) at the latest. For subsequent filing years, the filing due date will be 31 March. The assessment of the return filed by the lead entity will be performed by the tax administration of the lead canton, which is the canton in which the lead entity is tax resident. Any top-up tax is due on the date of the filing deadline of the return. Based on the Swiss Minimum Tax Ordinance, any top-up tax burden resulting from the QDMTT assessment must be re-charged to the Swiss legal entities contributing to the top-up tax burden.

 

With the introduction of the IIR in Switzerland as of 1 January 2025, an IIR return will be needed to be filed by the lead CE in Switzerland covering the relevant data from jurisdictions where Switzerland has IIR taxing rights. The IIR return will also be filed via OMTax with equivalent filing deadlines as the QDMTT return.

 

UTPR return only becomes relevant once Switzerland introduces UTPR, while the compliance procedures are likely following the procedures for the QDMTT return as well as the IIR return.

 

3.    GloBE Information Return

Each CE located in a GloBE implementing jurisdiction is required to file a GIR on an annual basis. CEs could be discharged from the requirement if a central GIR filing (through the UPE or a designated filing entity) and an exchange of information framework are available. The GIR should be filed no later than 15 months after the last day of the reporting fiscal year. For the first year that GloBE is in effect, the return is due no later than 18 months after the last day of the reporting fiscal year.

 

It is thus far not yet fully clear whether a GIR filing will be possible in Switzerland for the tax year 2024, given that Switzerland will only introduce IIR as of 1 January 2025. However, with the development and availability of technical infrastructure to support the submission of the GIR in Switzerland in the first half of the calendar year 2026 and the implementation of the legal framework for exchange of information, the possibility of such GIR filing can be assumed. The GIR filing will be handled through a different platform than OMTax.

 

4.    Local notification of central GIR filings

When the central GIR filing option applies, each CE discharged from the requirement to file a GIR (or a designated filing entity) would need to notify the tax administration of the identity of the entity that is filing the GIR and the jurisdiction in which it is located. Such notification needs to be filed annually per jurisdiction and its timing for filing is aligned with the timing for filing the GIR.

 

For Switzerland, no further guidance in this regard has been published yet.

How to navigate the GloBE tax landscape

Gathering new data sets and developing new compliance processes can be a complex and time-consuming exercise. Although the filing deadlines may seem distant, it is crucial for in-scope groups to act now and begin their preparations well in advance to meet the upcoming requirements.

Effectively navigating these changes from a compliance perspective will require, among others, the following key actions:

  • Data readiness by means of identification of new data requirements, assessment of your current systems, data structure and sources as well as the development of a comprehensive data strategy with a multi-functional team.
  • Adapt your systems, technology, processes, governance and controls to meet evolving compliance requirements.
  • Stay on top of your compliance obligations, not only in Switzerland but in any relevant jurisdictions, and comply with relevant deadlines.
  • Keep a close eye on developments to factor possible variations, such as changes in the local legal framework for minimum taxation. 

Summary

The GloBE rules introduce a level of complexity, novelty, and uncertainty that intensifies the already challenging global compliance and regulatory landscape for MNEs in Switzerland and around the world. The worldwide rollout of Pillar Two, combined with anticipated differences in local regulations, adds extra layers of complexity that MNEs must carefully consider, including navigating the GloBE compliance lifecycle in Switzerland.

About this article

A photo CLaudia
Claudia Pirot
Director, Tax Services | EY Switzerland
Experienced tax professional supporting global and national corporate clients on Swiss corporate tax matters and BEPS Pillar 2 projects with a focus on BEPS Pillar 2 Compliance.
Related topics
Tax
Global tax reform

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