Key References and Implications

Switzerland aligns its transfer pricing regulations with the OECD Transfer Pricing Guidelines, despite the absence of a specific mention in their laws. Key provisions related to transfer pricing exist in Article 58 of the Federal Law on Direct Federal Tax and Article 24 of the Federal Law on the Harmonization of the Cantonal and Communal Taxes. The Swiss Federal Tax Administration (SFTA) encourages tax authorities to consider the OECD Guidelines when taxing multinational enterprises.

Defining Related Parties

Switzerland generally follows the OECD definition of related parties, considering entities to be related if they share a business or close personal relationship, without requiring direct or indirect participation in management, control, or capital.

Documentation and Reporting

Swiss tax legislation lacks explicit references to transfer pricing. Instead, the arm’s length principle in federal and cantonal laws forms the basis for profit adjustments. The SFTA issued circular letters instructing cantonal tax administrations to assess cross-border intercompany transactions in accordance with OECD Guidelines and the arm’s length principle.

Tax Havens and Blacklists

Switzerland was added to the EU’s list of Tax Havens in December 2017 due to certain tax schemes. To address this, Swiss voters approved the Federal Act on Tax Reform and AVS Financing.

Advance Pricing Agreements (APAs)

While Switzerland permits APAs, there are no formal procedures. Tax rulings are common, and the SFTA participates in bilateral and multilateral APAs. The typical APA duration ranges from 3 to 7 years.

Audit Practices

Transfer pricing issues are increasingly scrutinized during audits, particularly those involving intangibles, services, intercompany financing, or business restructuring. There is no specific transfer pricing audit process; audits may occur during regular tax audits.

Transfer Pricing Documentation

Swiss tax law lacks specific documentation requirements except for Country-by-country reporting. Taxpayers must provide documentation upon request, demonstrating that transfer prices are based on sound economic reasoning. While no specific formal requirements exist, the taxpayer should prepare appropriate documentation, often aligned with OECD Guidelines.

Country-by-country Reporting

Switzerland adopted Country-by-country reporting standards in its legislation, effective from December 1, 2017. The reporting obligation becomes mandatory from tax year 2018 onwards.

Content of Transfer Pricing Documentation

The content of TP documentation varies case by case. Switzerland often refers to OECD Guidelines, ensuring intercompany transactions adhere to the arm’s length principle.

Choice of Transfer Pricing Method

The SFTA prefers transactional methods over profit-based methods and may use the cost-plus method for service companies. Other methods may be considered where circumstances dictate.

Economic Analysis – Benchmark Study

Swiss comparables are limited, so Pan-European benchmarks are generally accepted, with the Amadeus database often used.

Inter-company Legal Agreements

Legal agreements are relevant, but the ‘conduct of parties’ concept is prioritized, as per OECD 2017 Guidelines.

Financial Statements

Tax assessment in Switzerland often follows statutory accounts. If charges are not commercially justified or income is not properly recorded, tax authorities may make adjustments.

Production Process for TP Relevant Documents

Documents should be in the official language of the cantonal authorities. English documents may be accepted but should be translated as needed.

Notification Requirement and Record Keeping

Specific transfer pricing penalties are absent in Switzerland, and general penalty rules apply only in cases of fraud or negligence. Interest charges apply for late payment and adjustments, potentially leading to Swiss withholding tax payment.