The Swiss Tax Conference (SSK), which all cantonal tax administrations and the Federal Tax Administration (FTA) are part of, has recently published together with the FTA a comprehensive paper on transfer pricing (TP) for the dossier “Tax Information”. This publication, which mainly refers to the OECD TP Guidelines for Multinational Enterprises and Tax Administrations (“OECD TP Guidelines”), makes it clear that transfer pricing is becoming increasingly important in Switzerland.
Summary of the paper on transfer pricing
The paper on transfer pricing outlines the following key areas:
Legal basis and tax consequences:
It delineates the international and national legal frameworks regarding the arm’s length principle. Further, the paper deals with the Swiss tax implications resulting from TP adjustments, limited to income and withholding taxes.
Comparability analysis:
The paper summarizes the OECD TP Guidelines’s comparability analysis. The explanations also contain references to Swiss practice, including the tendency not to accept comparative data from distant tax years and the acceptance of values from the entire interquartile range, not just the median.
Method selection:
The document affirms the preferential use of specific transfer pricing methods based on distinct functional profiles and transactional types: Specifically, it mentions that the Comparable Uncontrolled Price (CUP) method is often applied for commodities and interest rates, the Resale Minus Method is considered especially for distribution companies and the Cost Plus method is stated to be utilizable for manufacturers of semi-finished products or service companies. Due to the extensive accessible data, so the paper, the Transactional Net Margin Method (TNMM) is often considered in practice. Regarding the profit split method, reference is made to a practical example (mentioned in the OECD TP Guidelines) where two related parties develop together a pharma product, each party owning relevant patents.
Further aspects:
- Intangibles, highlighting DEMPE functions and the Discounted Cash Flow (DCF) as the prevalent valuation method.
- Services, endorsing the simplified approach for low-value adding services.
- Financial transactions, acknowledging adherence to Chapter X of the OECD TP Guidelines.
- Cost contribution arrangements and TP aspects of business restructurings are not covered in the paper.
Documentation:
While confirming the three-tiered documentation approach, the paper clarifies that in Switzerland, the only mandatory transfer pricing documentation is the country-by-country report (if the relevant group turnover threshold of CHF 900m is surpassed). Swiss law does not specify other particular requirements; however, taxpayers must provide relevant information upon request under the existing collaboration obligation.
Procedural aspects:
The paper recommends filing simultaneous TP ruling requests with both cantonal and federal tax authorities due to potential impacts on income tax and withholding tax.
Transfer pricing corrections:
The paper briefly touches upon the process of primary, corresponding and secondary adjustments.
Conclusions
The recent paper on transfer pricing confirms the growing attention of the Swiss tax authorities to transfer pricing issues and reinforces the use of the OECD TP Guidelines as an interpretative guide.
Tax Partner AG will be pleased to support you in all matters relating to transfer pricing.