Hands up, who enjoyed the year-end tax provision process? All those Excel files, lots of last-minute new versions, mysterious hard-coded figures, chasing across time zones for missing explanations, all with Finance eagerly awaiting the tax submission – what fun! And now Pillar Two adds a new twist to this game.

The introduction of Pillar Two marks a significant shift in the global taxation landscape. From a practical perspective, for tax functions within impacted organisations it adds additional pressure on the tax provisioning process at year-end. For some, an already straining system risks breaking under the weight of the Pillar Two requirements.

Pillar Two could become a catalyst to finally reassess your operating model around tax accounting and kick-off a transformation. This may either be out of necessity to meet the imminent and dynamic compliance and reporting requirements of Pillar Two, from a wish to seize the opportunity and utilise synergies across tax data and processes, or the decision to finally fix a painful tax provision process.

To effectively navigate the gameboard to improve efficiency, accuracy, and transparency, we highlight some ladders to success that will accelerate your journey to an efficient tax accounting operating model. But watch out for the chutes representing pitfalls that hinder success and cause setbacks along the way.

New requirements putting more pressure on the tax provisioning process

Current and deferred tax provision calculations are already performed within a short time period and the Group level review is often done in only a couple of days. This can involve night shifts to deal with tight deadlines and different time zones and to refresh calculations for updates to underlying financial data. Excel files that have been adapted over the years can provide some automation, but if a formula fails there is no time to find the one person who understands it. Figures are ready just in time and the review process fills any remaining minutes before sign-off is required. The risk of slipping down a chute is ever-present.

Impacted organisations will now need to cope with the increased workload of Pillar Two without any additional hours in the timeline or additional resources. Not only are Top-Up Tax provisions and associated disclosures required, deferred taxes may need to be calculated and booked with greater granularity to be considered Covered Taxes for Pillar Two and to allow ongoing tracking. Preparing for these challenges requires a critical look at the existing operating model, technology solutions, data management and team skills.

Ladders for success

A successful tax operating model transformation begins with documenting existing systems and processes to identify current pain points, as well as to reflect how the new processes will fit in with existing operations. Going through these documentation steps provides valuable insights into how operations are really carried out and can help to validate assumptions made and plan a future-state process, a first ladder in the game of process optimisation.

Data is key for Pillar Two and automating the collection of as much data as possible will reduce the manual effort required and free up time for the Tax team to focus on review, strategic analysis and planning. The Pillar Two process can require adjustments to financial data and making these as far upstream in the finance process as possible allows the correct data to also be available for tax provision calculations. Each data point should have an assigned responsible person to ensure accuracy, timeliness, and completeness, and that person should have an awareness of the impact on the tax calculations.

Introducing a hard-close process can speed up year-end reporting and may provide the necessary reprieve to meet deadlines. Standardising local tax packs and simultaneously incorporating Pillar Two data points can help ensure consistency and accuracy in tax calculations and allow for the increased level of detail. Automating tax pack consolidation improves efficiency and reduces the risk of error.

Many organisations focus now on selecting and implementing a Pillar Two solution to be ready for the 2025 year-end. This might be developed in-house, licensed from an external vendor, or the process may instead be outsourced to a service provider. The choice is complex and needs to consider the specific requirements and priorities of the organisation from a structural and technical perspective. The decision should consider the potential to integrate a tax provisioning solution either simultaneously or incrementally and the tax provision process target operating model should be included in the planning phase of the Pillar Two implementation project. Whether within the same tool or in a linked solution, being able to pull data from one to the other and utilise synergies in the processes will save valuable time and can enable far reaching benefits across the organisation.

The tool can become a single source of truth for tax data and enhanced features such as scenario modelling can highlight the effects of any changes to current or deferred taxes on the Pillar Two calculations. This ensures that any tax efficiency gains do not land you on a chute, resulting in an unintended increase in Top-Up Taxes owed. Being able to see the impact that a change has elsewhere on the tax figures will be crucial for making informed decisions.

Chutes and setbacks

The increased interconnectedness of taxes faced by global organisations necessitates a collaborative approach between Local and Group Tax, Finance and with service providers. Corporate income tax return calculations, deferred tax provisions, return-to-provision adjustments, and Pillar Two Top-Up Taxes interact so closely with each other that dealing with these in silos can cost time and increase risk.

Assuming a chosen software will work out-of-the-box within a short timeframe can cause frustration and missed deadlines. Tax teams that do not have the IT team integrated from the beginning often find themselves falling down this chute.

Process optimisation can focus too strongly on the technology aspects. Technology is only as good as the data it receives and the users who operate it. If end-users are not included in the planning and implementation of a new system, or are not provided with adequate training and documentation, they are unlikely to buy-in.

Winning the game

Pillar Two can be used as a catalyst for improvement and if you manage to successfully navigate the gameboard by avoiding chutes and benefitting from ladders, you can future-proof your Tax function and relieve the strain. Will 2025 be the year you fix that painful provision process?

If this blog resonated with you and you are considering implementing a tax accounting solution, please consider joining our Tax Accounting Software Showcase event on Tuesday, 15 April in Zurich.

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Should you require assistance in navigating the gameboard, or if you would like to discuss more on this topic, please do reach out to our key contacts below.

First published in Bloomberg - Copyright 2024 Bloomberg Industry Group, Inc. (800-372-1033) www.bloombergindustry.com. Reproduced with permission

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In its decision of 5 December 2024 (A 2023 1, in German), the Zug Administrative Court addressed whether an average operating margin over three years, which corresponds to almost the lowest quartile of the arm’s length margin range, is acceptable for tax purposes. The court rejected this based on the principle of periodicity and ruled that transfer prices must be “at arm’s length” in each tax year.

The group company initially licensed IP rights to its subsidiaries. These IP rights were subsequently transferred within the group and the business activities in 2018 were limited to routine sales activities. For the tax year 2018, the company set the commercial operating margin at -21.8% (negative operating margin) to achieve an overall average operational margin of 1.2% over a three-year period (2016-2018). The arm's length margin range in the respective business area was between 1.1% and 7.3% (interquartile range over several years) per year. The tax administration did not accept the negative operating margin in the 2018 tax assessment and adjusted it to 1.2%. As the company appealed against this assessment, the Zug Tax Administration involved a transfer pricing specialist from the Swiss Federal Tax Administration (“SFTA”). Based on the specialist's technical analysis, the operating margin was set at 1.1%, the lowest quartile of the third-party comparison. The taxpayer has appealed to the Administrative Court.

Court decision

The Administrative Court reaffirmed that Swiss tax law - with the exception of certain provisions - does not follow a group perspective but treats each company as a legally independent entity. Legal transactions between group companies must therefore be carried out at arm’s length. The determination of appropriate transfer prices between group companies is based on the premise that remuneration depends on the functions, risks and assets of the parties involved in a service relationship. Routine companies should generally make a small but stable profit. Losses are only conceivable in limited start-up phases or crises.

In the case at hand, it was clear that the margin of -21.8 % in 2018 was not at arm’s length. The Court referred to the principle of periodicity stipulated in art. 58 Direct Federal Tax Act (German/French) and pointed out that there was no legal basis for a retrospective "smoothing" of the margins to an average of 1.2% over the three years from 2016 to 2018. Thus, a company is not free to artificially adjust its results downwards in a retrospective multi-year analysis. To allow this would be contrary to the basic principle of transfer pricing law, which is to ensure that each business unit is taxed according to the economic value it contributes to the value chain.

Since the taxpayer did not present any extraordinary circumstances that could explain its significantly negative result and justify it as arm's length, the operating margin must be adjusted to ensure that the taxpayer achieves a minimum arm's length target operating margin. By setting the margin only at the lowest quartile that still meets the arm's length standard, the taxpayer's economic freedom is taken into account.

Deloitte’s View

This decision clarifies that a multi-year average margin, which is still in the arm's length margin range, is - in general - not accepted for tax purposes. Rather, the principle of periodicity requires an annual assessment. We therefore recommend reviewing/calculating the respective margins on an annual basis as an “excessively” high margin in one year cannot be offset against an “excessively” low margin in another year. This cantonal court’s decision is in line with the SFTA’s practice.

It also shows that Cantonal Tax Administrations are increasingly using transfer pricing specialists for their assessments, either own transfer pricing specialists or such from the SFTA’s transfer pricing team.

If you would like to discuss more on this topic, please reach out to our key contacts below.

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Lucerne is the fourth canton after Basel-City, Grisons, and Zug to publish its plans to remain attractive as a business location despite the global minimum tax (media release, in German). The focus is on the introduction of Qualified Refundable Tax Credits (“QRTC”). The consultation process will last until 9 June 2025 and the act will come into force on 1 October 2026 at the earliest.

Due to the global minimum tax (Pillar Two), the attractiveness of the canton of Lucerne as a location is deteriorating significantly. To maintain the competitiveness of the living and economic area, the government plans to invest CHF 300 million annually in a broad package of measures from 2026. The government has released the draft act today for public consultation.

Measures for Companies

Of the CHF 300 million in annual investments, CHF 200 million are to be used for the benefit of companies. On the one hand, the tax multiplier for legal entities is to be reduced. On the other hand, a new “innovation funds” of around CHF 160 million per year is to be introduced. The amount will be re-evaluated every year.

Qualified Refundable Tax Credits

In order for a company to receive grants from this innovation funds, the following conditions must be cumulatively met:

• The company must be registered in the commercial register and have premises and staff in the Canton of Lucerne (no shell companies).
• The company must be actively involved in basic research, industrial research or experimental research.
• The company must submit a sustainability report and have an audited annual financial statement.

The grants are to be paid out by means of Qualified Refundable Tax Credits (“QRTC”) in line with the OECD Model Rules and are determined as follows:

• 30% for R&D personnel (gross salary)
• 20% for investments (depreciation)
• 10% for contract research

Companies must submit a written application for such QRTC. The legal basis will not be in the tax law, but in the law on location promotion and regional policy.

Deloitte’s View

The topic of new tax incentives is gaining momentum in Switzerland. Following in the footsteps of the cantons of Basel-Stadt (potential referendum vote, not enacted), Grisons (pending in parliament, not enacted) and Zug (pending in parliament, not enacted), Lucerne as another important business location is coming up with its proposals. The draft act is now going into the consultation phase and will not come into force until 1 October 2026 at the earliest.

A comparison of the cantonal proposals to date shows that the new incentives are usually designed as QRTC or government grants. The main aim is to promote value-creating activities in R&D and sustainability. Interestingly, to date no canton has identified activities in the area of digitalization as eligible for promotion.

If you would like to discuss more on this topic, please reach out to our key contacts below.

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On 10 December 2024, Australia passed its Public Country-by-Country Reporting (CbCR) law. This law affects multinational entities that have material operations in Australia by requiring the public release of specified tax and other information on a jurisdiction-by-jurisdiction basis together with a statement on their approach to taxation, for reporting periods starting on or after 1 July 2024. While information for most jurisdictions outside of Australia may be aggregated, Switzerland is on a list of specified jurisdictions, published by the government on 18 December 2024, for which such information will need to be provided on an individual jurisdiction basis.

Australia Public CbCR

The Australian Public CbCR applies to parent entities, independent of jurisdiction, of groups with annual global income of AUD 1 billion or more and where the MNE’s aggregated turnover includes at least AUD 10 million of Australian-sourced income and an Australian presence. The measure, effective for financial years starting on or after 1 July 2024, requires the CbCR reporting parent to submit the information to the Australian Taxation Office (“ATO”) in the approved form within 12 months after the end of the reporting period. The ATO will then make this information available on a centralised Australian government website.

Information to be published include the CbCR reporting parent’s name, names of each entity in the CbC reporting group, a description of the CbCR reporting group’s approach to tax based on GRI 207’s guidance as well as different data points, most of them aligned with the one required for the OECD CbCR. Whilst certain information can be published on an aggregated basis for most of the jurisdictions, it should be disclosed on an individual jurisdiction basis for Australia and a list of 40 specified jurisdictions, including Switzerland.

The data points that will need to be provided for Switzerland will be:

1. the name of the jurisdiction
2. a description of main business activities
3. the number of employees (on a full-time equivalent basis) at the end of the reporting period
4. revenue from unrelated parties
5. revenue from related parties that are not tax residents of the jurisdiction
6. profit or loss before income tax
7. book value at the end of the reporting period of tangible assets, other than cash and cash equivalents
8. income tax paid (on a cash basis)
9. income tax accrued (current year)
10. the reasons for the difference between income tax accrued (current year) and the amount of income tax due if the income tax rate applicable to the jurisdiction were applied to profit and loss before income tax
11. the currency used in calculating and presenting the above information.

Amounts reported should be based on amounts shown in the audited consolidated financial statements. Amounts will still be shown as total over all entities in the jurisdiction, as in the OECD CbCR standard. Corrections of material errors must be made within 28 days of the entity becoming aware of the error and there is also a provision for entities to correct non-material errors. A penalty of up to AUD 825,000 will apply in the case of late or non-lodgement or for failure to correct a material error. There is currently no detail on how the penalty regime will apply to CbC reporting parents that are not Australian residents, such as foreign residents with Australian operations.

Certain entities may be granted an exemption from filing by the ATO if it would affect national security, breach Australian law or the laws of another jurisdiction, or result in substantial ramifications for the entity (by an objective standard) by revealing commercially sensitive information. The ATO indicates on its website that it is planning on the release of a practice statement by February 2025 outlining the approach to reporting exemptions.

At this stage, several considerations need to be made. These include determining overlaps with other standards or regimes such as GRI 207, EU Directive 2021/2101 (“EU Public CbCR”), local law specificities, OECD CbCR, and Pillar 2 Transitional Safe Harbour, as well as mapping out the additional information required. It is also essential to understand the extent to which the sources of information and the definitions of data fields align across different reports (“consolidated”, “qualifying”, or “aggregation”). Lastly, the technical and operational aspects of the conversion and lodgement process, which involve aggregation, schemas and software, lodgement portals, data management, and internal controls, should be reviewed.

After considering all these steps, we recommend to develop a reliable Financial Reporting System that centralises processes where feasible by creating a “Master” CbC Source and a centralised calculation process for the amounts.

EU Public CbCR

Australian Public CbCR requirements come on top of the EU Public CbCR. EU Directive 2021/2101 of 24 November 2021 introduced an obligation for MNEs with annual global consolidated revenue over EUR 750 million and operations in more than one EU member state to make a simplified CbC Report publicly available for financial years starting on or after 22 June 2024. The Directive has been transposed into local legislation in several EU countries, with certain deviations and additional timing requirements. For example, Romania has transposed EU public CbCR for financial years starting on or after 1 January 2023, Croatia from 1 January 2024, Sweden from 31 May 2024, with publication required 12 months after the year-end. The information to be disclosed is widely aligned with the OECD CbCR and must be provided separately for each EU member state and for each jurisdiction on the EU list of non-cooperative jurisdictions for tax purposes and the preliminary nomination EU list. (Switzerland is not included in any of these lists.) Information for other third-country operations may be aggregated. For EU-parented groups, the EU parent entity is responsible for reporting. For non-EU-parented groups, each qualifying EU subsidiary or branch must publish the CbCR information in their jurisdiction. However, these may be exempt from this obligation where the non-EU parent published the report on its website and designated one of the EU subsidiaries or branches as a “subsidiary publisher” to file the report with their national commercial registry, if the domestic legislation of the country allows.

It is crucial to monitor the enactment of the EU Public CbCR legislation in the jurisdictions they are located in, and in near time decide on a publishing/filing strategy that works best for them as well as the elements to be streamlined with the Australian Public CbCR requirements.

How to prepare

Swiss MNEs should start preparing for the new disclosure requirements through i) data preparation as well as ii) considerations around communication strategy involving various stakeholders.

Regarding data preparation, given the need to comply with various measures and timelines, a streamlined process is key. It is essential to address any discrepancies and identify interdependencies for different CbCR requirements (OECD CbCR, Public CbCR and Pillar II CbCR Safe Harbor) as well as other tax and transfer pricing compliance requirements as soon as possible. By doing so, MNEs can ensure a more efficient and cohesive approach to compliance, thereby enhancing their overall governance and reporting framework.

Regarding communication and stakeholder management, Clients should ensure that relevant stakeholders are informed on what information will be made available to the public and in what form. E.g., it should be ensured that Communications & Investor Relations teams are informed about what information will be available to the broad public going forward. These teams should also be consulted to consider any proactive communication prior to or at the time of the publication of the CbCR, e.g. if explanations would be deemed helpful.

If you would like to discuss more on this topic, please reach out to our Transfer Pricing experts at Deloitte. See contacts below.

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On 27 and 28 January 2025, the Swiss Federal Tax Administration (“SFTA”) published the Swiss safe harbour interest rates applicable for the year 2025, both for intercompany (“IC”) loans and advances denominated in Swiss francs (German / French / no English version) as well as in foreign currencies (German / French / no English version). These rates are used by the SFTA to assess the arm’s length nature of interest rates on intragroup loan receivables or payables and provide a level of tax certainty from a Swiss tax perspective, in absence of a bespoke arm’s length comparability analysis.

Scope

Although not explicitly mentioned, these safe harbour intercompany interest rates only apply in practice to financial transactions with a term of more than 12 months, as stated by the Cantonal Administration Appellate Court of Zurich in a new decision (SB.2023.00014, in German). It should also be noted that these interest rates are only binding until the next publication. If the interest rates change in 2026, the new interest rates will apply from January 2026 and therefore the 2025 rates cannot be used for financial transactions with a fixed interest rate over a specific period of several years.

The safe harbour interest rates for 2025 apply retroactively as of 1 January 2025.

Interest Rates for IC Loans and Advances in Swiss Francs (CHF)

The 2025 minimum interest rates on CHF-denominated loans granted by a Swiss resident company to a shareholder or related party generally are as follow below:

This outlines a decrease of the CHF minimum lending rates for 2025 of 50 basis points (“bps”) when compared to 2024.

For loans denominated in Swiss Francs, received from shareholders and affiliated parties, the maximum interest rates payable by Swiss entities are calculated based on the minimum lending rate in CHF increased by a specific spread, as follows:

It should also be noted that different interest rates apply to real estate loans.

Interest Rates for IC Loans and Advances in Foreign Currencies

The table below shows the safe harbour interest rates by currency, applicable for 2020 to 2025. We note that for 2025 we can see some significant increases across the board, while some remained unchanged.

The interest rates depicted in the table above apply to advances and IC loan receivables which are equity-financed. For debt-financed receivables, the respective third-party or related party debt financing costs (%) plus a margin of 0.50% applies, subject to the minimum corresponding rate disclosed in the table. However, if the CHF safe harbour rate is higher (i.e., 1.00% for 2025), then this higher rate must be charged, working as a second floor. As all the interest rates disclosed in the above table are higher than the CHF safe harbour rate, this second floor has no practical effect for 2025. Therefore, the minimum applicable interest rates will be those shown in the table above.

For the determination of the maximum interest rate for IC loan payables under the safe harbour rules, a spread is to be added to the interest rates depicted in the table. The spread is stipulated by reference to the operating loans under paragraph 2.2 of the Circular No. 213. Therefore, for operating loans up to the equivalent of CHF 1 million or less, the spread amounts to 2.50% in case of trading and manufacturing companies as borrowers, and to 2.00% for holding and asset management companies as borrowers. For advances and IC loans exceeding the equivalent of CHF 1 million, the applicable spread is 0.75% and 0.50%, respectively.

Deloitte’s View

Our key observation from the latest Circular Letters is that the 2025 Swiss safe harbour interest rates for CHF intercompany loans and advances have decreased when compared to 2024, in an effort to reflect the expected market interest rate developments. For intercompany loans and advances in foreign currencies, the 2025 Swiss safe harbour interest rates have generally increased. Noteworthy changes include an increase of 525 basis points for loans denominated in BRL and an increase of 175 basis points for loans denominated in HUF. Conversely, the safe harbour interest rate for loans denominated in CNY has significantly decreased by 100 basis points, reflecting China's substantial reductions in its key interest rates during the last quarter of 2024.

The decrease of 50 bps for the safe harbour interest rates related to Swiss franc (CHF) IC loans and advances mirrors the Swiss National Bank’s (“SNB”) 50 bps cut in its interest rate in December 2024 – the largest reduction in nearly a decade. Through this monetary policy, the SNB aims to counteract the weaker-than-expected inflation in Switzerland.

Given that volatility in the markets is expected to persist throughout 2025, even if lower than in previous years, there may be differences between the Swiss safe harbour interest rates and the external debt financing costs at which multinational companies are able to finance their operations. This may put pressure on multinational companies which are relying on safe harbour rates to defend their position in Switzerland. The application of such rates can also have an impact on the transfer pricing consideration of other jurisdictions party to the transfer pricing arrangements.

In this regard, we would like to note that a taxpayer can apply an interest rate that deviates from the published safe harbour rates. This possibility has, in fact, been reinforced by the detailed paper issued by the SFTA on January 23, 2024 (German/French/no English version) – section 2.2.2. However, in such cases, the burden of proof is reversed and, thus, for such an interest rate to be accepted by the Swiss tax authorities, the taxpayer would have to demonstrate that the interest rate applied meets the arm’s length standard. In practice, this would require performing appropriate transfer pricing benchmarking studies in line with the requirements of Chapter X of the OECD Transfer Pricing Guidelines.

Non-compliance with the arm’s length principle can lead to negative tax consequences in Switzerland, such as recharacterization of the interest as a hidden profit distribution subject to Swiss withholding tax at a rate of 35% (grossed up to 53.8% if not borne by the recipient) and being add-back to taxable income.

Lastly, it should be noted that transfer pricing is becoming increasingly more important for tax administrations in Switzerland, with courts ruling on more and more transfer pricing cases each day.

In a recent decision (9C_690/2022, in German), a five-judge panel of the Swiss Federal Supreme Court ("Bundesgericht") dealt with the question of the types of taxes to which the annual circular on safe harbour interest rates annually issued by the SFTA applies, and whether and to what extent the circular is binding on tax administrations. The court clarified that the SFTA circular applies to Direct Federal Tax and Withholding Tax, as well as Cantonal and Municipal Taxes and it also clarified the conditions under which the safe harbor rates are binding on tax administrations. The Federal Supreme Court took a «quid pro quo”-view: Only if the taxpayer complies with the rates are they binding on the tax administration. If the taxpayer does not comply, the tax administration can ignore the circular and determine an arm's length interest rate as part of the assessment. Please refer to our Deloitte Blogpost that further details this case.

If you would like to discuss any aspect of transfer pricing for loans or other types of financial transactions such as guarantees, cash pooling, hedging or captive insurance, please reach out to our Transfer Pricing experts at Deloitte. See contacts below.

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As the US prepares for President-elect Donald Trump to take office on January 20, 2025, the United States is preparing for significant shifts in tax policy. With Republicans controlling both chambers of the US Congress, and many individual income tax provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) sunsetting at the end of 2025, the stage is set for potential tax changes that will impact businesses, individuals, and the broader economy. For Americans living abroad, these changes could have significant implications and allow for new planning opportunities.

With the upcoming sunset of many of the TCJA’s individual income tax provisions, the new Congress has made it clear that their priority is to pass a tax bill to, at minimum, extend most of the favourable individual income tax provisions that are otherwise set to expire at the end of 2025. Additionally, throughout President-elect Trump’s campaign, he made various statements around potential additional tax changes.

Potential Extension of TCJA

The key individual income tax provisions of the TCJA set to expire at the end of 2025 include:

• The increased standard deduction (for 2025: $15,000 for Single/Separate, $30,000 for Joint, and $22,500 for Head of Household filers),
• The decrease in the marginal tax rate across all income brackets,
• The doubled child tax credit ($2,000 instead of $1,000 per qualifying child), and
• The increased estate and gift tax exemption ($13,990,000 lifetime exclusion per taxpayer, and $19,000 annual gift tax exclusion).

Absent any modification or extension of the TCJA provisions, we would expect the standard deduction, child tax credit, and estate/gift tax exemptions to revert to their pre-TCJA levels (indexed for inflation) and decrease by approximately half. Additionally, we would expect the restoration of the personal exemptions that were available in tax years prior to 2018.

Speaker of the House Rep. Mike Johnson and Senate Majority Leader Sen. John Thune have both expressed their intentions to pass an extension of the TCJA. However, disagreements surely remain on new tax law changes and the legislative approach to passing a tax bill.

President-elect Trump’s Tax Proposals

During his campaign, President-elect Trump proposed several key changes to the tax code including extension of the TCJA’s temporary provisions and additional changes, which build on TCJA. The primary focus of his tax agenda includes further reducing corporate tax rates and introducing new tax incentives aimed at boosting domestic production and supporting families.

For Americans living abroad, particularly in Switzerland, several of Trump's proposals could have direct impacts, namely:

• Social Security Benefits: The proposal to eliminate taxes on Social Security benefits could benefit American retirees living abroad, who currently face taxes on up to 85% of their benefits if their combined income exceeds certain thresholds.
• Foreign Earned Income Exclusion and Housing Deduction: While not specifically addressed in Trump's proposals, any changes to the Foreign Earned Income Exclusion (FEIE) or housing exclusion could affect Americans working and living in high-cost countries like Switzerland. Currently, the FEIE allows US citizens to exclude a portion of their foreign earnings from US taxation, and the housing exclusion provides additional relief for housing costs.
• Removing the cap on State and Local Tax (SALT) itemised deductions: The TCJA introduced a $10,000 ceiling on SALT that can be claimed as an itemised deduction, which is set to expire after 2025. While only about 9% of US taxpayers itemise, this provision can be very relevant for taxpayers moving to/from states with relatively high tax burdens. While the support of this provision interestingly does not fall along party lines, President-elect Trump has indicated his support for reinstating the full deduction on State and Local Taxes.
• Restoration of Personal Exemptions: Although repealed until 2025 with the TCJA, personal exemptions are set to be restored after 2025. The inflation-indexed amounts (2017) are $4,050 per household member, with the respective AGI phaseouts being $261,500 (single) and $313,800 (joint). There has been little indication thus far from the incoming administration on whether this provision is expected to be permanently repealed or reinstated after 2025.
• Itemised Deduction Limitation: The limitation applies to deductions such as mortgage interest, state and local taxes, and charitable contributions. The limitation can limit itemised deductions by up to 80%. Although the limitation was suspended under the TCJA, it is scheduled to be back restored after 2025. There is little indication thus far on whether the limitation is expected to be permanently repealed or reinstated after 2025.

Proposed Legislation to Introduce Residence-based Taxation

Trump mentioned during the campaign to “end the double taxation of overseas Americans.” While more concrete details were not discussed on the campaign trail, on December 18, 2024, Representative LaHood (R-IL) introduced the “Residence-Based Taxation of Americans Abroad Act”, a bill which proposes implementing a residence-based taxation system for US citizens living overseas.

This bill aims to alleviate compliance and tax burdens for Americans overseas. The proposed bill would allow certain Americans living abroad to make an election to be treated as a non-resident for US tax purposes, thereby subjecting them to US tax only on US-sourced income and gains. If a US person makes this election, they may be subject to an exit tax if their net worth is in excess of the estate tax exemption ($13,990,000 for 2025 tax year).

It is broadly believed that this is unlikely to pass as a standalone bill, but elements of it could make their way into the broader tax bill, which may pass later in the year.

As President-elect Trump takes office, taxpayers should stay informed about potential tax policy changes and their implications.

For US persons living in Switzerland, a switch to a residence-based tax system may allow tax planning opportunities that are currently unavailable to most US persons living in Switzerland.

For example, more Americans could realise tax savings via additional Swiss Pillar 2 and Pillar 3 pension contributions. Additionally, more Americans could take advantage of the significantly lower tax rates in certain Swiss cantons.

Evaluating, modelling, and planning for various outcomes will be essential if these proposals evolve into concrete legislation. The coming months will be critical in determining the future direction of US tax policy under the new administration.

If you would like to discuss more on this topic, please reach out to our key contacts below.

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As we enter 2025, we would like to reflect on the past 12 months, summarise the developments, look ahead to the new year, and elaborate on expected changes from an immigration perspective.

Switzerland is known for its reliable and consistent immigration processes and rules. The past 12 months have been no exception, with limited changes to the immigration landscape throughout the year. We anticipate few changes to happen in 2025.

A review of 2024

Facilitation of work permit application process for Non-EU/EFTA nationals

In 2023 several simplifications of the work permit application process for non-EU/EFTA nationals were introduced. One significant change was waiving the three-stage approval process for most locally hired non-EU/EFTA nationals (excluding applications for non-EU/EFTA graduates of Swiss universities or self-employed non-EU/EFTA nationals).

Two years after this change was implemented, we see its impact in practice: in most cantons, these applications no longer require approval from the federal migration office, leading to shorter processing times and cost savings for Swiss employers.

Extension of S-Status

The S-protection status was introduced with the start of the Ukraine conflict in 2022. This status enables refugees from Ukraine to obtain residence in Switzerland within a short period and without undergoing the usual asylum process. Initially announced for a fixed duration of 12 months, it underwent several extensions due to the ongoing war. In September 2024, the government announced that the status will remain in place until at least March 2026.

Entry-visa exemptions for nationals of Kosovo and Serbia 

Following an EU decision allowing nationals of Kosovo holding a biometric passport and Serbian nationals holding a passport issued by the “Serbian Coordination Direction” to travel to the Schengen Area for short-term stays without a visa, the Federal Council decided that entry to Switzerland without a visa would also be allowed. For nationals of Kosovo, the changes took effect on 1 January 2024; for Serbian nationals, the changes became effective on 13 October 2024.

The visa exemption applies to short-term stays of up to 90 days not linked to employment. For employment in Switzerland, a visa will still be required, and the candidate must meet the requirements according to the Swiss Federal Act on Foreign Nationals and Integration.

New Stagiaire Agreement with the US

Switzerland and the US signed a new agreement on the exchange of trainees and young professionals. This agreement will make it easier for young professionals of US or Swiss nationality to receive training in Switzerland or the US. The new agreement aims to simplify visa processing and apply to a broader range of people to attract more young professionals to use the exchange opportunity. It became effective on 30 November 2024, replacing the previous contract from 1980.

The very first stagiaire agreement was concluded in 1936 between Switzerland and Belgium. Since then, almost 40,000 Swiss trainees have been able to work temporarily abroad and almost 60,000 foreign trainees have been able to do so in Switzerland.

Work permit quotas 

Switzerland has a quota system in place, with different quota numbers for non-EU/EFTA nationals, EU/EFTA national service providers, and UK nationals.

The current data released by the Swiss government shows that the work permit quotas for the year 2024 were not exhausted. At the end of November, the Federal Council announced that the number of work permit quotas for 2025 will remain the same. The volumes are:

• Quotas for Non-EU/EFTA Nationals: 8,500 quotas will be available for specialists from Non-EU/EFTA countries. There will be 4,500 long-term B permits and 4,000 short-term L permits.
• Quotas for EU/ EFTA Nationals Service Providers: Approved are 3,500 quotas in total, 3,000 L permits and 500 B permits.
• Quotas for UK Nationals: Although from an immigration process perspective, UK nationals fall under the non-EU/EFTA nationals category, they receive their own work permit quota allocation. It is anticipated that these quotas will be integrated into the overall quotas for non-EU nationals in the near future. For 2025, the Swiss Federal Council again approved 3,500 quotas for specialists from the UK: 2,100 long-term B permits and 1,400 short-term L permits.

Upcoming changes for 2025

Lifting of Quotas for Croatian nationals

As a result of the high numbers of Croatian national workers who entered the Swiss labour market in 2022, the Swiss Federal Council decided to invoke the safeguard clause for Croatia and reintroduce quotas starting 1 January 2023. During the past two years, the number of short-term and long-term permits was limited to 2,257 per year.

The safeguard clause may only be applied for a maximum of two consecutive years, so it must be lifted from 1 January 2025. This means Swiss employers seeking to hire Croatian nationals in 2025 will no longer have to secure a work permit approval before the start date.

Switzerland can invoke the safeguard clause once more for the year 2026 in case the number of Croatian nationals moving to Switzerland exceeds a certain threshold again in 2025. This is due to the transitional period of ten years applicable to Croatian nationals, which lasts until 31 December 2026.

Limitation of S protection status 

In December 2024, the Swiss Parliament decided to limit the eligibility criteria for the S permit. Therefore, only refugees from areas occupied by Russia or affected by fighting shall be eligible for the S permit. Refugees from Ukrainian regions that are not affected by fighting and are considered safe shall no longer be able to obtain the S protection status.

The Federal Council, together with the Federal Migration Office, will have to define how and when these changes shall be implemented in practice. Refugees already holding an S permit shall not be affected by these changes and shall remain under the protection status S until at least March 2026.

Occupation Notification Requirements – Updated List

Employers in Switzerland are required to advertise vacancies for occupations where the unemployment rate exceeds 5%. The job advertisement for the impacted roles will be posted exclusively on the website of the regional unemployment agencies during the first five days. Only after these five days can employers post the job ad on other platforms.

The government recently updated the list of occupations impacted by the job notification requirement. Jobs subject to the job notification requirement are primarily in construction or gastronomy. However, as of 1 January 2025, the following occupations are back on the list (amongst others):

• Managers in marketing, sales & distribution
• Clinical research scientists

Employers recruiting in these occupations must ensure they post their vacancies accordingly with the unemployment agencies. Whether a job is affected by the job notification requirement can be checked with the Check-Up 2025 tool.

ETIAS Travel Authorisation 

The EU created the European Travel Information and Authorisation System (ETIAS) to strengthen security checks for individuals benefiting from visa-free travel to the EU. The ETIAS is a travel authorisation that will be mandatory for nationals who are visa-exempt for entry into 30 European countries, including Switzerland.

Before travelling, travellers must apply for an ETIAS travel authorisation through the official ETIAS website or the ETIAS mobile application. The travel authorisation is usually valid for three years or until the expiry of the travel documents used for the application.

The ETIAS travel authorisation application must be submitted well in advance as airlines and sea carriers are required to verify the possession of ETIAS authorisation in advance of travel. Furthermore, the ETIAS system will work in tandem with the Entry/Exit System (EES) to facilitate easier identification of travellers. The EES is an automated border check system that enables the registration of non-EU nationals at the time of entry or exit at the external borders of selected Schengen Area countries.

The go-live date for this system was postponed several times. The goal is for the system to be introduced in mid-2025.

Conclusions and recommendations 

The year we just closed was calm, with few changes in immigration regulations. While we do not expect many changes to occur in 2025, those taking place will undoubtedly impact employers and their employees.

One of the most important and positive changes is lifting the quotas and corresponding process changes for Croatian nationals. It will lead to a more straightforward process when hiring Croatian nationals in Switzerland. 

Implementing the ETIAS travel authorisation will likely be one of the changes requiring the most adaptations when travelling to Europe. The implementation of ETIAS is a personal obligation for the individual travelling. However, when the travel is for business purposes, it also affects employers. Alongside the changes related to Croatian nationals and the occupation notification requirement, employers will need to evaluate situations carefully and well before a potential travel or move of their employees to Switzerland.

If you would like to discuss any of the above topics, please reach out to our key contacts below.

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In a decision published before Christmas (9C_168/2023 and 9C_176/2023, in French), the Federal Supreme Court addressed whether the grant of shares to managers without consideration under a management incentive plan established by a Swiss holding company is subject to Swiss Securities Transfer Duty. The court concluded that, subject to certain conditions, no Securities Transfer Duty is to be levied.

Fact Pattern

A Swiss holding company, registered as a securities dealer for Securities Transfer Duty purposes, granted shares (PSUs and RSUs) to its managers under a management incentive plan, without consideration, subject to a three-year vesting period. The Swiss Federal Tax Administration and, subsequently, the Federal Administrative Court argued that the share grants were made for valuable consideration and were thus subject to Securities Transfer Duty according to art. 13 para. 1 FDSA (German/French), as the grants were closely linked to the work performed by the managers.

Court Decision

The Federal Supreme Court ruled that the shares could not be linked to specific work performance, meaning their delivery did not constitute consideration for Securities Transfer Duty purposes. Consequently, no Securities Transfer Duty was due. Even if the managers' work had been considered as consideration for the shares, a market value would have had to be determined (art. 16 para. 2 FDSA, German/French), which was not possible. Simply using the market value of the shares granted to employees was inappropriate, as the market value of the shares was subject to fluctuations influenced by factors unrelated to the employees’ performance. This is particularly true for shares listed on the stock exchange.

Deloitte’s View

The Swiss Federal Supreme Court's ruling is a welcome clarification, confirming that the grant of shares without consideration under a management incentive plan is not subject to Securities Transfer Duty. However, the Court's decision does not discuss the question of whether the Securities Transfer Duty applies when a manager acquires shares at a price below market value or when paying for shares upon exercising an option. In such cases, where the transaction involves consideration, the levying of Securities Transfer Duty may be applicable, depending on the specific circumstances and the parties involved. In such cases, a case-by-case assessment has to be done. It should also be noted – for the sake of completeness – that any income tax consequences on the level of the respective employee have to be assessed separately.

If you would like to discuss more on this topic, please reach out to our key contacts below.

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With the operational launch of the web-based application OMTax on 1 January 2025, companies in Switzerland will be able to fulfil their legal obligation to register for Pillar Two purpose. Registration will be exclusively electronic and must be completed at the latest before filing the tax return (typically by 30 June 2026). If a multinational group has several entities in Switzerland, a responsible entity must be designated for registration. However, this cannot be freely chosen but must be determined based on legal requirements.

Pillar Two in Switzerland

Switzerland is gradually introducing the global minimum tax in Switzerland. Constituent entities of in-scope multinational groups in Switzerland will be subject to the Swiss top-up tax (QDMTT, see our blog) for financial years beginning on or after 1 January 2024. In addition, the Federal Council decided in August 2024 that, depending on the group structure, constituent entities will also be subject to a Swiss top-up tax under the Income Inclusion Rule (IIR) for financial years beginning on or after 1 January 2025. In view of the legal and economic uncertainties, the Federal Council has decided not to introduce a Swiss top-up tax under the Undertaxed Profit Rule (UTPR) for the time being (see our blog).

OMTax Application

The declaration of the Swiss top-up tax and, one year later, of any international top-up tax under the IIR must be made electronically using the new web-based OMTax application. OMTax is a joint IT solution of the SFTA and the cantons, which is integrated into the ePortal of the Swiss government. Deloitte has been actively involved in the testing of this new platform together with large companies and other tax advisors. To access OMTax, an account must first be created in the ePortal. The platform will be available to taxpayers from 1 January 2025 in German, French, Italian, and English.

Registration Process

As a first step, the taxable constituent entity of a large multinational group within the scope of the top-up tax must be identified and included in a Pillar Two register. To do this, the taxable constituent must be registered in the OMTax application. The registration can be done by the entity itself or by a tax representative. After successful registration, an activation letter will be sent with a code that completes the registration and unlocks the tax return. Registration is possible from 1 January 2025, but must be completed before the tax return is filed (18 months after the end of the first tax year, usually 30 June 2026). It may take several working days to process the registration and issue the activation code. Importantly, the registration is also required for multinational groups which will benefit from the transitional CbCR safe harbour.

Determining Taxable Constituent Entity

The registration must be carried out by the taxable constituent entity in accordance with art. 5 of the Swiss Minimum Tax Ordinance ("SMTO", German/French). A multinational group with several constituent entities in Switzerland is not free to choose this constituent entity but must comply with the provisions of art. 5 SMTO. This is usually the top domestic entity in the group structure or the most economically significant entity if there is no intermediate company in Switzerland or several intermediate companies subject to Pillar Two. It is the responsibility of the multinational group to determine this entity. The canton in which this taxable constituent entity is domiciled is responsible for registration and future assessment.

Deloitte’s View

With the operational launch of the new platform and the possibility of complying with the legal requirement to register from 1 January 2025, Pillar Two in Switzerland is entering the next phase. Deloitte was actively involved in testing this platform and the new processes, and welcomes the fact that Switzerland has opted for a simple, purely electronic solution. However, the platform should not obscure the fact that the regulations and the tax return itself are very demanding. The tax return is closely based on the OECD template and can only be completed with extensive Pillar 2 knowledge. Affected groups should consider how they want to organize their compliance processes in Switzerland and worldwide. It is conceivable that compliance work could be fully outsourced to Deloitte, or just reviewed. Along with their tax returns, groups will also be confronted with the question of whether they can make use of the numerous election rights. Deloitte's Pillar Two Agent is a highly regarded software solution that can be used, among others, to quickly and easily simulate the effects of exercising these election rights.

If you would like to discuss more on this topic, please reach out to our key contacts below.

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