Update on OECD's Pillar 2: Global minimum tax in Switzerland

New Administrative Guidance on Article 9.1. of the Pillar 2 Model Rule

What has been announced?

• On January 15, 2025, a new Administrative Guidance ("AG") was published that will have an impact on the Pillar 2 position for several Swiss entities of multinational enterprises ("MNE Group").
• The AG is related to article 9.1. of the OECD Model Rules that deals with transition rules that allow pre-GloBE deferred taxes arising from temporary differences and carryforwards to be considered for the GloBE regime. Article 9.1.2 of these transition rule does exclude deferred taxes for the Pillar 2 calculation if such deferred taxes resulted from DTA's that were generated in a transaction that took place after November 30, 2021.
• The Administrative Guidance provides additional and new guidance what elements must be met for Article 9.1.2 to apply and states that the term “transaction” shall be interpreted more broadly than defined earlier and does include any agreement, ruling, decree, grant or similar arrangement with a General Government as well as any amendment or modification to a pre-existing governmental arrangement.

Why was the new Administrative Guidance made?

• The OECD wants to avoid that article 9.1. is used to shelter all or a portion of an MNE Group’s future low-taxed income from the GloBE Rules through the usage of certain DTAs relating to tax credits or basis step-ups agreed.

Who is impacted by the new Administrative Guidance?

• Companies with a deferred tax asset in its books that is attributable to a governmental arrangement falls within the scope of Article 9.1.2 where such governmental arrangement provides the taxpayer with a specific entitlement to a tax credit or other tax relief (for example, a tax basis step-up) that does not arise independently of the arrangement.
• Companies with such deferred tax assets relating to tax credits or basis step-ups agreed with or granted by a government after 30 November 2021.

How does the new Administrative Guidance work?

• The Administrative Guidance provides for a two-year grace period that allows Swiss entities to still use deferred tax expenses coming from such DTA's for FYs 2024 and 2025.
• But, the Administrative Guidance allows to use 20% of the amount of deferred tax assets that were originally recorded only. In addition, such grace period is not applicable if the DTA results from an arrangement concluded after 18 November 2024.

What is our current understanding for the Financial Statements impact

• Since the Administrative Guidance was released after December 31, 2024, it is not clear how it needs to be reflected in the 2024 financial statements. So far there is no clear guidelines if a potential impact needs to be accounted for already in the accounts 2024 or if outlining in the notes is sufficient.

What you need to do

• Swiss entities that have recognized DTA’s falling under the definition of article 9.1.2 must analyze to what extent they are affected by the Administrative Guidance.
• Please reach out to us for any questions in this matter or if you want us to provide further clarification on how your company is impacted by the Administrative Guidance.

Example

How the Administrative Guidance may impact your current taxes

Company A discussed and agreed with its cantonal tax authority that its tax holiday that was earlier granted up to 2033 was converted in autumn 2023 into a non-refundable Tax Credit of 1,000. A DTA of 1,000 was accrued in its group financials as of 12/31/2023.

Going forward, Company A records a deferred tax expense of 100 in its financial accounts associated with the reversal of such deferred tax asset each year from 2024 to 2033. See table below:

 

The Profit (Loss) Before Tax as well as the Simplified Covered Taxes of Company A are as follows:

 

Under paragraphs 8.8 and 8.9 of the commentary to Article 9.1.2, the Grace Period is the 2024 and 2025 Fiscal Years, and the Grace Period Limitation is 20% of the amount of the deferred tax assets that were originally recorded. Thus, the Grace Period Limitation is 200 in our example.

The Profit (Loss) Before Tax as well as the Simplified Covered Taxes of Company A excluding deferred tax expenses attributable to the reversal of deferred tax assets and liabilities described in paragraph 8.5 are as follows:

For the 2026 Fiscal Year, the Grace Period has ended. The 100 of deferred tax expense recorded in 2026 is excluded from the Simplified Covered Taxes calculation and as a result the MNE Group is not eligible for the Transitional CbCR Safe Harbour in the 2026 tested Fiscal Year. Accordingly, its Transition Year in respect of that jurisdiction is 2026 and the deferred tax expense of 100 is also excluded from the Total Deferred Tax Adjustment Amount under Article 4.4.