Switzerland and the digital services tax proposed in the EU

Switzerland is not planning to introduce interim measures such as the digital services tax proposed in the EU, announced Switzerland’s State Secretariat for International Finance (SIF). The statement is made as a response to OECD’s preparing a report, to be published in 2020, on how to best adapt the international corporate tax on multinational groups to new digital business models.

Switzerland’s Government recently announced its position concerning a long-term solution to the taxation of the digitalized economy, explaining that interim measures based solely on a turnover in market areas can lead to double taxation and over-taxation and make it more difficult to achieve a global consensus for a definitive solution.

According to SIF, the OECD should guarantee fair tax competition by updating the corporate international tax and transfer pricing system.

Supporting innovation through taxation

Switzerland’s Government stressed out that taxation should both enable and promote innovation and sustainable competition and safeguard its tax receipts.

In the same time, tax regulations should also be technology-neutral so as not to hamper or suppress innovation. Thus, any tax rules should be neutral regarding both competition and technology.

The Swiss government also believes that the introduction of a minimum tax restricts competition and can lead to additional burdens for companies.

The idea of an internationally coordinated minimum tax on multinational groups was supported by Germany, in the idea of equalizing the tax differences imposed on digital and non-digital multinationals.

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 for developing a business. The country has many advantages for investments, as the taxation system is one of the most attractive, supporting development, innovation and competition principles.

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