Interpellation Birrer-Haimo (18.3685): Fair taxation of online platforms in Switzerland
Submitted text
The economy is in the midst of digitization, the opportunities and advantages of which various players know how to exploit. As digitization progresses, online platforms such as Amazon (2017 sales in CH: CHF 600 million), Zalando (2017 sales in CH: CHF 624 million) or Airbnb are becoming increasingly important. As these often have their Headquarters (physical presence) do not have in Switzerland, they are not subject to direct federal tax or taxes on profits. There was no legal basis for this, as the Federal Council stated in its answer to the Interpellation 16.3585 explained. This tax revenue is thus missing in Switzerland. In this context, the OECD has suggested that the Concept of physical presence by the status “virtual permanent establishment” to be added. As an OECD member, Switzerland is committed to formulating rules to create a level playing field for domestic and foreign service providers, according to the Federal Council’s Digitization Report of January 11, 2017.
On March 21, 2018, the EU Commission presented a package for fair taxation of the digital economy. This follows the principle of levying taxes on income from online platforms also in the country in which the platform’s users are located as well as taxing online platforms even without a physical place of business in the country and only on the basis of their virtual presence.
In this context, I would ask the Federal Council to answer the following questions:
1. in the response to the Interpellation 16.3585 the Federal Council points out the lack of a legal basis for taxing online platforms operating in Switzerland. What need for action does it see here? What implementation options is it considering?
2. what is its view of the EU Commission’s proposal to levy a tax of 3 percent on online platforms with a certain turnover depending on the number of users per country?
3. how does it assess a tax for a virtual presence of an online platform in Switzerland if the local turnover exceeds a certain amount, for example 7 million francs turnover?
4. how far has Switzerland come in creating a level playing field according to the OECD for domestic and foreign service providers with regard to taxation? What measures are still planned?
Statement of the Federal Council of 29.8.18
1. the applicable rules on corporate taxation require a physical presencefor a company to establish a tax liability in a state. Today, however, a company can achieve significant business activity in a state through a digital presence (i.e., without a physical presence). Therefore, the Organization for Economic Cooperation and Development OECD is developing proposals on how the international rules on corporate taxation could be adapted to the new developments. In March 2018, it published an interim report on the tax challenges posed by digitalization (OECD Interim Report 2018, cf. http://www.oecd.org/ctp/tax-challenges-arising-from-digitalisation-interim-report-9789264293083-en.htm) is published. The report is an overview that reflects the different views of the individual member states and does not make a recommendation. It describes benchmarks for an interim solution that can be implemented in the short term, such as the digital tax proposed later by the EU Commission, and goes into more detail on its disadvantages. With regard to long-term measures, further work is required on the connecting factor for direct taxes as well as on value creation and profit allocation. A Report is planned for 2020.
Switzerland actively participates in the work of the OECD and advocates multilateral approaches that tax profits in the state where the value is added and that do not cause double or excess taxation. As long as a comprehensive internationally broad-based assessment that creates a level playing field is not available, the Federal Council is of the opinion that No need for action. The corresponding report of the OECD is to 2020 are available. Then the further procedure will have to be reconsidered.
Largely ineffective would be unilateral measures Switzerland, which linked taxation to a virtual presence. Such a presence could be assumed, for example, if the business activity carried out consisted wholly or partly of the provision of digital services via a digital interface and certain criteria were met, such as reaching an annual turnover threshold, a certain number of users or concluded business contracts for digital services. Such measures would only be effective vis-à-vis that minority of states with which Switzerland has not concluded a double taxation agreement (DTA) or has not adapted an existing DTA accordingly.
2. and 3: The EU Commission, following the OECD’s 2018 Interim Report, has defined as. Interim solution proposed a 3% levy on certain digital transactions (digital tax). Such a levy is outside the scope of DTAs. It leads to Double and excess taxation and thus violates the principle of taxation based on economic capacity (cf. Art. 127 BV). Furthermore, it does not take into account the place of value creation, but the size of the sales market. Restricting the tax to large companies would affect questions of legal equality (Art. 8 BV).
4 As stated in paragraph 1, the OECD will continue its work on the connecting factor for direct taxes and on value added and profit allocation until 2020. The Federal Council will evaluate its position in 2020 once the OECD report is available.
With regard to VAT, foreign and domestic companies have already been largely put on an equal footing with the partial revision of the VAT Act that came into force on January 1, 2018. As of January 1, 2019, mail-order companies with high turnover will also be subject to VAT for their shipments to Swiss customers.