Worldwide transfer pricing reference guide 2014

Switzerland
Taxing authority and tax law
Tax authority:
• Cantonal Tax Administration (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 the 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 fact, these two articles reject a tax
deduction for non-commercially justifiable expenditures. This in turn provides the legal background for an adjustment to taxable profit in
cases of deviations from the arm’s length principle.
In addition, for intercompany loans, there are administrative directives regarding “safe-harbor regulations,” which allow for the setting of
interest rates without any specific documentation.
Relevant regulations and rulings
There are no specific transfer pricing regulations in Swiss tax law. However, a number of administrative directives (including circulars and
circular letters) implicitly or explicitly refer to the determination of transfer prices, including:
• Circular letter No. 6 from 6 June 1997 regarding hidden equity
• Circular letter No. 8 from 18 December 2001 regarding international profit allocation of principal companies
• Circular letter No. 4 from 19 March 2004 referring to the taxation of service companies
• Circular from 25 February 2013 regarding interest payments between related group entities (updated yearly)
OECD Guidelines treatment
The SFTA instructed the Cantonal Tax Administrations, in its Circular Letter of 4 March 1997, to unconditionally adhere to the OECD
Guidelines for transfer pricing matters. There are no specific tax regulations on business restructurings in Switzerland, i.e., Switzerland
follows the OECD view.
Priorities/pricing methods
The SFTA adheres to the OECD Guidelines and hence, the application of the respective methods therein.
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 individual taxpayer 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. In exceptional cases, if the taxpayer can prove,
based on appropriate documents and records, that the applied margin is too high, the SFTA can allow for a lower margin.
Transfer pricing penalties
There are no specific transfer pricing penalties, but general penalty rules apply. However, (non-tax-deductible) penalties are only
imposed in cases of fraud or negligence. Although no penalties apply in the event of adjustments, interest charges for late payment are
due in such a case.
Penalty relief
There are no special provisions for penalty reductions.
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