Taxing authority and tax law
Tax authority:
- Cantonal Tax Authorities (tax assessments)
- Federal Tax Administration (SFTA; competent authority)
There are no specific references to transfer pricing in Swiss tax law. However, legal support for adjusting taxable profits of a taxpayer is derived from the arm’s length principle in Article 58 of the Federal Direct Tax Act on a federal level as well as in Article 24 of the Federal Law on the Harmonization of the Cantonal and Communal Taxes on a cantonal level. In addition, there are various administrative directives referring to so-called “safe-harbor regulations” which allow for the setting of transfer pricing without any specific documentation (e.g., with regard to intercompany interest payments).
Relevant regulations and rulings
There are no specific transfer pricing regulations.
OECD guidelines treatment
The SFTA has instructed the cantonal tax administrations in its Circular Letter of 4 March 1997, to adhere to the OECD Transfer Pricing Guidelines for transfer pricing matters. There are no specific tax regulations on business restructurings in Switzerland.
Priorities/pricing methods
The SFTA adheres to the OECD Transfer Pricing Guidelines and prefers the usage of the comparable uncontrolled price (CUP) method as well as the traditional transactional methods over profit-based methods. According to Circular Letter 4/2004, the profit margin for service companies must be determined in accordance with the arm’s length principle (i.e., for each taxpayer individually on the basis of comparable uncontrolled transactions considering appropriate margin ranges). The Circular Letter also implicitly states that the cost plus method is the most appropriate method for service companies to price their services based on a functional and risk analysis. However, concerning the provision of financial and management services, the cost plus method shall only be accepted in exceptional cases.
The SFTA uses in principle a full cost approach including all direct and indirect costs. Generally, when the taxpayer can, based on appropriate documents and records, prove that the applied margin is too high, the SFTA may exceptionally allow for a lower margin. The transactional profit split method is rarely used in Switzerland. In the financial and banking services sector (including in the area of investment and asset management), some Cantonal Tax Authorities tend to validate the applied transfer prices using transactional profit methods.
Transfer pricing penalties
There are no specific transfer pricing penalties, but general penalty rules apply. However, penalties are only imposed in cases of fraud or negligence. Interest charges for late payment are due in case of adjustments.
Penalty relief
There are no special provisions for reductions in penalties.
Documentation requirements
There are no specific documentation requirements. However, if challenged by the SFTA, the taxpayer has to demonstrate that the transfer prices applied were based on sound economic and commercial reasoning on an arm’s length basis. Although it can be concluded from the Federal Direct Tax Act that in principle, a taxpayer upon request of the Swiss tax administration, should prepare transfer pricing documentation, there is little guidance on the structure of such documentation. However, based on the references to the OECD Transfer Pricing Guidelines in the 1997 Circular Letter, an OECD-compliant documentation in one of the official languages of Switzerland is accepted by the SFTA. Due to the lack of sufficient independent comparable companies on the Swiss market, it is usually allowed to apply Western European comparables.
Documentation deadlines
There are currently no special provisions for documentation deadlines.
Statute of limitations on transfer pricing assessments
The general rule provides for up to 10 years from the end of the tax year, if new facts or circumstances are discovered by the tax administration.
Return disclosures/related-party disclosures
There are no formal related-party disclosure requirements. However, in the case of a tax audit or request from competent authorities, the taxpayer must provide the requested information to a reasonable extent.
Audit risk/transfer pricing scrutiny
The risk that transfer pricing issues will be scrutinized during an audit is at a medium level, but transfer pricing is increasingly being addressed by the SFTA. Transfers of intangibles and transactions with related offshore companies, in particular in the financial industry, receive specific scrutiny.
APA opportunity
There are no specific formal APA procedures. Nevertheless, the SFTA has already participated in several multilateral APAs. In practice, however, unilateral rulings are more common. APA procedures are carried out in accordance with the applicable rules for mutual agreement procedures. All Swiss signed double tax treaties usually contain a provision on the mutual agreement procedure, under which the SFTA can launch an APA process.
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