Background
The OECD/G20 Global Anti-Base Erosion (GloBE) Model Rules on Pillar Two aim at ensuring large multinational enterprises pay a minimum level of tax in each jurisdiction.
The Swiss IIR and QDMTT regimes (UTPR has not yet been implemented in Switzerland), as adopted by the Ordinance on the Minimum Taxation of Large Corporate Groups (OMinT), are based on the provisions of the GloBE Rules, which apply by analogy in Switzerland.
Under the GloBE Rules, a key component for calculating the GloBE effective tax rate (ETR) in a concerned jurisdiction is the concept of "Covered Taxes"1 (which typically includes residual withholding taxes on dividends — see Article 4.2.1(b) of the GloBE Rules) and their allocation among Constituent Entities and jurisdictions (Article 4.3).
GloBE Rules: allocation of cross-border taxes under the IIR/UTPR and QDMTT
Article 4.3.2 governs the allocation of cross-border taxes, notably Permanent Establishment Taxes (a), CFC Taxes (c) and Covered Taxes accrued by a direct parent entity on distributions from its subsidiary Constituent Entity (e), which typically include net basis taxes and residual withholding taxes on distributions.
Under the IIR/UTPR regimes, Article 4.3.2 typically allocates these cross-border taxes to the Permanent Establishment, the CFC Entity or the distributing Entity, respectively.
By contrast, the administrative guidance (AG) published by the OECD in February 2023 clarified that QDMTT regimes must exclude Permanent Establishment Taxes and CFC Taxes from domestic top-up tax calculations to be eligible for the qualified status.
The policy intent2 is that excluding those taxes "allows the QDMTT to operate as a simple calculation and does not require the complex calculations required in some cases." Further, the "specific ordering rule is aimed at attributing primary taxing rights to the jurisdiction applying the QDMTT." Hence:
If the ordering rule were the opposite, so that CFC Taxes or Permanent Establishment Taxes were credited under a QDMTT, additional computations would have been required in order to avoid the QDMTT resulting in taxation that is below the Minimum Rate.
However, as noted in the July 2023 AG (pp. 66-67, Nos. 43 and 44), the February 2023 AG did not specifically address the treatment of taxes paid by a Constituent Entity-owner on distributions from subsidiary Constituent Entities in the context of QDMTT regimes.
The July 2023 AG then clarified that "some taxes on distributions also fall within the policy rationale of the February 2023 AG" (typically, net basis taxes):
[…] specifically, taxes imposed by the jurisdiction of a foreign Constituent Entity-owner on distributions from another Constituent Entity must not be included in the ETR computation of the Constituent Entity under a QDMTT.
However, the July 2023 AG also clarified that "withholding taxes imposed by the jurisdiction of the distributing Constituent Entity can be taken into account in computing the ETR under that jurisdiction's QDMTT."
What was the issue in Switzerland?
According to Article 2 paragraph 2 lit. b of the Swiss OMinT, Article 4.3.2.(e) of the GloBE Rules is not applicable when determining Swiss domestic top-up taxes. The purpose of this exclusion is to align OMinT with the GloBE Rules' requirements to be eligible to the QDMTT status.
Thus, a strict reading of the OMinT would mean that Swiss residual withholding tax on distributions from Swiss Constituent Entities to their Constituent Entity-owners (e.g., 5% residual withholding taxes based on the Swiss-US double tax treaty) would not be an included Covered Tax for Swiss QDMTT purposes, despite the clarifications made by the OECD in the July 2023 AG.
SFTA practice interpretation of Article 2 paragraph 2 lit. b of the OMinT
Confusion and uncertainty stemmed from the wording of the OMinT. The SFTA indicates that excluding Swiss residual withholding tax on distributions for Swiss QDMTT purposes was not the policymaker's desired intent.
Accordingly, in line with the February 2023 AG and the 2025 Consolidated Commentary, the SFTA Communication confirms that Swiss residual withholding tax on outbound distributions must be treated as an included Covered Tax of the Swiss distributing Entity for Swiss QDMTT purposes.
For inbound dividends, the SFTA specifies that foreign residual withholding taxes levied on Excluded Dividends paid by subsidiary/consolidated Constituent Entities to their Swiss Constituent Entity-owner, must be excluded from the GloBE Income of the Swiss parent. The foreign residual withholding tax must instead be allocated to the foreign distributing Constituent Entities. This is in line with the GloBE Rules.
However, the SFTA did not elaborate on other scenarios involving inbound dividends. For instance, where a foreign Short-term Portfolio Shareholding pays a dividend to its Swiss parent entity, the dividend income would typically be treated as an Included Dividend and any foreign residual withholding tax levied would be considered as Covered Tax for Swiss top-up tax purposes.
1 All capitalized terms in this document refer to terms defined in the GloBE Rules.
2 See 2025 Consolidated Commentary, art. 10.1, par. 118.30
