Switzerland and the digital services tax proposed in the EU

The EU has made headway towards the introduction of taxation on digital services of recent. Switzerland however will not be participant of this interim measure of taxation. 
 
The Swiss authorities have not been acceptant of these proposed interim measures because of their effects on the stakeholders involved. The observation that interim measures calculating tax on turnover in market areas make way for double taxation and over-taxation is one of the cited reasons. The Swiss government does not view the proposed tax as a long term solution as it’s based on fundamentals that make it more difficult to achieve a global consensus for a definitive solution.
 
According to Switzerland’s State Secretariat for International Finance (SIF), the OECD should make assurances of fair tax competition by updating the corporate international tax and transfer pricing system.

The Swiss government’s views on supporting innovation through taxation

Switzerland’s Government has taken a stand to ensure that taxation should both enable and promote innovation and sustainable competition as well as safeguard its tax receipts. It is paramount that tax regulations become technology-neutral so as not to suppress innovation. Ideally tax regulations should be impartial concerning both competition and technology.
 
The Swiss government has been vocal on the introduction of a minimum tax restricts competition resulting on additional burdens for companies. The idea of an internationally coordinated minimum tax on multinational groups is also shared by Germany. It is in line with equalizing the tax differences imposed on digital and non-digital multinational corporations.

Long-term solutions

According to the 2015 OECD/G20 Base Erosion Profit Shifting (BEPS) report, profit from the digital economy should follow the principle of value creation, taxation being applied where a value is created. Thus, incentives being offered for good framework conditions and enabling companies to produce efficiently, taking into consideration at the same time, the functions performed, risks borne, and assets employed.

The Swiss government is also concerned about the risk of double taxation and over-taxation, supporting the maintenance of the international network of double taxation agreements and the integration of new solutions.

SIF states taxation gaps should be eliminated, and the allocation of profits should be adapted to digitalization, being consistent with value creation, and avoiding unilateral measures. SIF supports reaching an international consensus by consulting business representatives in a timely and comprehensive manner.

EU digital tax, in brief

  • The European Commission (EC) has introduced two proposals intending to tax digital companies that have significant activity in Europe.
  • The long-term proposal is a framework for establishing a taxable digital presence in EU countries.
  • An interim proposal would tax the revenues from some digital activities of multinational corporations by 3 percent.
  • The 3 percent tax on revenues would operate like a tariff impacting multinational companies not based in the EU.
  • Both proposals are likely to have a broad impact despite being intended to target just a portion of the economy.
  • Several European leaders have weighed in against the proposals with comments recommending a more global solution rather than a European solution to taxing digital activities.
  • The proposals rely on redefining how and where a value is created, attributing value creation to users who often interact with digital platforms for free.
  • The proposed 3 percent tax on revenues for certain digital activities would hurt companies that operate on thin margins and further undermine the business climate in Europe.

Switzerland is one of the best destinations in the world to start a business. The country has many advantages for investors mainly due tio its attracive taxation system—supporting development, innovation and competitive principles. 

For more details and assistance regarding company formation in Switzerland, you can reach out to our expert consultants. Our highly experienced and well-informed team is ready to answer all your questions and give you all the help you might need.

 

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