Transfer Pricing

Swiss Federal Tax Authorities releases Q&A on specific transfer pricing topics

Following the transfer pricing publication of the Swiss Tax Conference together with the FTA in January 2024 (see our tax news as of February 2024), the FTA just recently published a Q&A on specific transfer pricing topics, shedding light on its transfer pricing practice. In this Q&A, the SFTA clarifies 41 questions in relation to transfer pricing, always referring to the OECD TP Guidelines.

The Q&A addresses the following four topics:

  • The cost-plus method and its application
  • Withholding tax (WHT) in case of transfer pricing adjustments
  • Tax consequences for Swiss corporate taxpayers following an US court case on the tax treatment of stock option costs
  • Intercompany financing

Hereinafter, we give you a brief high-level overview about three of the above discussed topics.

Cost-plus method

The Q&A answers the question on the composition of the cost base for the cost-plus method calculation. In this respect, it distinguishes between operating costs and non-operating costs, such as taxes and financing costs, and stresses out that in line with the OECD TP Guidelines only the operating costs are basically considered.

This is a welcomed clarification as there were disputes with the cantonal tax authorities that wanted to have these costs included (in all circumstances). In addition, the questionnaire comments on the treatment of pass-through costs, as well as the mark-up for low value-adding services, both in line with the OECD TP Guidelines.

Withholding tax in the case of transfer pricing adjustments 

The questionnaire also provides answers as to when the Swiss withholding tax is triggered in case of primary and corresponding transfer pricing adjustments, and profit repatriation (secondary adjustment).

The SFTA stresses that primary and corresponding adjustments typically relate to income tax. If such primary adjustment results in a profit repatriation, these are not considered to be deemed dividends and are not subject to withholding tax if they are carried out in accordance with the result of a mutual agreement procedure or an unilateral agreement. In the absence of such agreements, withholding tax is levied on payments made for the purpose of repatriation.

If for example a primary adjustment made by a cantonal tax administration is confirmed in whole or in part in the mutual agreement procedure, the question of the secondary adjustment arises, i.e. the levying of withholding tax by the SFTA on the amount of the primary adjustment confirmed in the mutual agreement procedure. In this respect, the SFTA differentiates between no withholding tax in case there is a respective agreement in the mutual agreement or withholding tax (especially in cases of evident profit shifts). If addressed in the agreement, the repatriation of profits must take place within 60 days of the mutual agreement conclusion.

Financing transactions

A big portion of the question relate to intercompany financing transactions. This shows the importance of financing transactions in general and the clear need to provide clarification by the tax authorities to the taxpayers.

The SFTA publishes on an annual basis safe harbour interest rates applicable to shareholder and intercompany loans, denominated in Swiss Francs and foreign currencies. In case these rates are adhered to, no proof is required that the at arm’s length principle is met. The Q&A makes clear that the safe harbour rates do not apply for short-term loans. Moreover, the safe harbour rates are not binding for foreign tax authorities. Thus, a taxpayer may set interest rates that deviate from the safe harbour. As a consequence, the arm’s length character of the transaction has to be demonstrated in a separate study. As part of the questionnaire, the SFTA clarifies the requirements for such a study. In this respect, it also discusses the application or calculation of credit ratings.


The issuance of the Q&A is expected to lead to an increased focus of transfer pricing in Switzerland. Although more transparency was added, only certain questions were addressed and others left-out, such as the question on the level of documentation expected by the Swiss tax authorities in absence of formal transfer pricing documentation requirements. The administrative tax practice is usually published in the form of circulars where it is also indicated for which taxes the circular applies. Thus, it is not clear whether the practice only applies for the Federal Direct Tax and the Swiss Withholding Tax or also to Stamp Duties and/or VAT. Finally, it is to be seen whether the cantonal tax authorities will apply these guidelines. As an example, the Canton of Zurich confirmed in the meantime that taxes are not part of the costs base when applying the cost plus method, thus follows the specification of the SFTA.

Please feel free to contact us if you have any questions.

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