Switzerland: A Tax Overview

Current Market Environment

Switzerland has maintained a strong focus on balancing a strong and reliable investment climate, a competitive regulatory and tax landscape, high-quality infrastructure, and education and technological advancement. The country regularly scores top marks in terms of rankings for competitiveness, innovation and tax environment (eg, Tax Competitiveness Index 2025, Rank 3), and is home to the headquarters of a multitude of multinationals from all sectors, such as Roche, Nestlé, Novartis, ABB, UBS, Zurich Insurance, Holcim and Glencore.

One of the main tax-related topics in 2026 will be the future of Pillar Two. After introducing Pillar Two in Switzerland, both the parliaments on the Swiss federal as well as cantonal level are discussing options on how to maintain Switzerland’s attractiveness as an investment location – including in relation to Pillar Two-compliant tax credits and subsidies, as well as measures such as amending Pillar Two (eg, changes to the framework in view of the side-by-side system excluding US-parented groups). What follows is a summary of key tax trends for 2026.

Pillar Two

State of play

After having introduced Pillar Two in 2024 (Qualified Domestic Minimum Top-Up Tax, QDMTT) and 2025 (Income Inclusion Rule, IIR), the Swiss government is currently reviewing an amendment of the domestic implementation ordinance (Minimum Tax Ordinance, MTO). These changes include clarifications such as (i) allocation of Swiss withholding tax on distributions as Covered Tax to Switzerland (a notion that was erroneously excluded from the first version); (ii) rules on GloBE Information Return (GIR) filing; and (iii) the question as to whether and which version the MTO should reference with respect to the OECD Commentary on Pillar Two.

Impact of Pillar Two on inbound investing multinational enterprises

The 2026 Swiss tax landscape will mainly be impacted by the question on the future of Pillar Two. This includes proper implementation of the side-by-side system (the “SbS System”) excluding US-parented groups from Pillar Two, potential changes to the Pillar Two framework (changes to the IIR or replacement by a different system) and the first submission of relevant tax returns.

SbS System and litigation

In June 2025, the G7 agreed on a side-by-side system excluding US-parented groups from the scope of Pillar Two. This means that US-parented groups are not subject to the IIR and Undertaxed Profits Rule (UTPR). Based on the current understanding, US-parented groups would remain in scope of domestic top-up taxes, although the US administration pushed for inclusion of Global Intangible Low-Taxed Income (GILTI) pushdown. With acceptance of GILTI pushdown, US-parented groups would likely be fully out of scope of Pillar Two which would make sense considering that Pillar Two-implementing jurisdictions could also just increase domestic corporate income tax rates. What will be important is the expected litigation stemming from the implementation of the SbS System. The SbS system – once implemented – will officially create a “two world” tax system for US and non-US parented groups. Due to the fact that the US is not implementing Pillar Two and it is highly likely that India and China will also not implement Pillar Two, the question remains under domestic law whether jurisdictions still have the authority to levy a minimum tax because it ceases to be a global undertaking. US-parented groups may challenge levying of domestic top-up tax and other groups’ potential IIR assessment on these grounds.

Impact of Administrative Guidance

In January 2025, the OECD published the fifth set of Administrative Guidance (AG). The AG notably addressed an extension of Article 9.1.2 Model Rules, ie, limitations on pre-GloBE deferred tax assets. As this retroactively impacts the 2024 and 2025 financial year, many jurisdictions face an implementation issue as they will be prohibited under constitutional rules to apply these rules retroactively. This discussion is likely to be part of audits for FY 2025 as well as tax policy. For instance, in the Swiss parliament, motions have been issued to the federal government querying whether Switzerland has not hastily implemented Pillar Two without proper assessment of the need to do so, and whether Switzerland should change its policy stance on Pillar Two. However, even application of the AG is highly dependent on facts and circumstances.

First filing of tax returns

The IIR, QDMTT and GIR returns have to be filed by 30 June 2026. This means that impacted groups will probably need to formalise their Pillar Two position in Q1 2026 at the latest. For Switzerland, several specific aspects remain at the forefront of discussions:

• Participation reduction – Swiss domestic participation reduction looks at the investment threshold of 10% or fair value of CHF1 million as the qualifier for dividends, whereas GloBE looks at 10% but held for at least one year (ie, no short-term portfolio shareholding). For capital gains, both domestic law and GloBE rules require an ownership interest of at least 10%. As Switzerland applies an indirect exemption, any other income exempt under the domestic participation reduction will result in higher cash tax under the QDMTT.
• Impairments on investments – Similarly, as impairments on investments are tax deductible in Switzerland but not for GloBE, groups may have had to either eliminate impairments for tax purposes to align with Pillar Two or to claim the Equity Investment Inclusion Election.
• Impact of AGs – A material amount of litigation stemming from the implementation of the SbS System, as outlined above, is expected.

Swiss Withholding Tax in Reorganisations

The Swiss dividend withholding tax (35%) anti-avoidance rules and substance requirements for treaty access continue to evolve.

Substance requirements

For treaty access on outbound dividends, Switzerland applies three substance requirements: financial substance (equity ratio of at least 30%), personal substance (people functions in jurisdiction of direct parent) and functional substance (ie, other investments of similar value held in other jurisdictions by direct parent). Based on current practice of the Swiss federal tax administration (SFTA), ownership of the direct parent which would in a direct-investment scenario also have access to a 0% rate under a treaty could remove the requirements to maintain the above substance requirements (eg, an intra-group scenario). However, participation of a person or entity outside of a treaty position would inversely trigger the requirement for multiple requirements to be met (eg, private wealth structures and funds/PE).

Extended international transposition

A non-refundable withholding tax leakage may occur if a related or third-party acquirer which is not entitled to a full refund of Swiss withholding tax (eg, in the US, Canada or Brazil) acquires a Swiss target through a Swiss acquisition vehicle which is financed in order to allow repatriation without Swiss withholding tax (eg, debt fined or with qualifying capital contributions reserves not subject to withholding tax (QCCR)). There are various measures to mitigate risks, but the SFTA generally does not accept a “valid business reason” justification as such.

Old reserves doctrine/liquidation by proxy

If a change in ownership in a Swiss entity results in a more favourable withholding tax refund position (eg, a switch from 5% to 0% under a treaty), the SFTA generally assumes that cash and cash-like assets remain subject to a non-refundable WHT until fully distributed (to the extent that retained earnings are available). The SFTA also applies a look-through approach for holdings. If the Swiss entity is liquidated after the change of ownership or sells/distributes its main assets within the group, this may result in non-refundable WHT on the entire fair value of the company. Transfers of intangibles after such ownership change, in particular, should be carefully structured.

Transfer-Pricing Audits and Disputes

The 2025 financial year saw a remarkable increase in transfer-pricing disputes with the Swiss tax authorities, notably on financial transactions. The SFTA challenges taxpayers for deviation from safe harbour rates where inadequate transfer-pricing documentation is available. In addition, potential changes of rates or refinancing should be properly reflected in the financing documentation – which is not typically the case.

In recent case law, Swiss courts held that deviation by a taxpayer from the safe harbour interest rates means that the tax authorities are no longer bound by those interest rates, and may make tax adjustments to the safe harbour threshold (ie, resulting in a higher transfer-pricing adjustment) and that related parties need to maintain arm’s length compensation on an annual basis (ie, intertemporal averaging is not permissible). As Switzerland adds 35% withholding tax to any adjustment subject to corporate income tax in cross and up-stream situations, it is crucial to have proper transfer-pricing documentation in place.

Outlook – Swiss Tax Developments 

It is expected that 2026 will be dominated by Pillar Two as groups file their first returns. The US SbS System is destined to provoke litigation in the EU and Switzerland which could result in the beginning of the end of the Pillar Two project.