SWITZERLAND Law and Practice Contributed by: René Matteotti, Monika Bieri, Daniel Schönenberger and Manuel Ulrich, Tax Partner AG
3.5 Comparability Adjustments Swiss domestic tax laws do not provide specific guid - ance on comparability adjustments. However, the OECD TPG on how and when to apply comparability adjustments are applicable.
ing that the most appropriate method should be used according to the case at hand. In other rulings the FSC has held that the hierarchy of methods as stipulated in the OECD TPG should in fact be followed. In a recent decision by the Swiss Federal Administrative Court, it was ruled that the SFTA has to respect the hierarchy of methods according to the OECD’s TPG. In practice, the three traditional methods – ie, the comparable uncontrolled price (CUP) method, the resale price method and the cost plus method – are still preferred by the tax administrations. Furthermore, the CUP method enjoys preference over the other two traditional methods in the case of comparability. How - ever, the transactional net margin method (TNMM) is the most commonly used method in Switzerland for determining transfer prices for services (corporate services, contract manufacturing services, contract R&D services), and routine distribution, whereas the CUP method is the most commonly used method for intangible property licensing and financing. The hierarchy of transfer pricing methods as stipu - lated in the older versions of the OECD TPG can still be of relevance. This is due to a static approach to the application of the TPG that means that the version of the TPG in effect at the time the transaction was settled is applied (see 1.1 Statutes and Regulations ). It is sometimes difficult, however, to assess whether an update of the OECD TPG can be considered merely a more detailed explanation of the existing principles or an actual change in the guiding principles. If the former is the case, a dynamic approach to the applica - tion of the TPG is permissible as well. 3.4 Ranges and Statistical Measures The use of statistical tools that consider central ten - dency, such as the interquartile range or other percen - tiles, is not required. However, in practice, such tools are usually used to narrow the range, in particular because the comparables in a benchmark study are usually not perfect. For the determination of adequate transfer prices, the tax authorities generally consider the interquartile range as the arm’s length remuneration.
4. Intangibles 4.1 Notable Rules
Swiss domestic tax laws do not provide specific guid - ance on the pricing of controlled transactions involv - ing intangibles. Rather, the OECD TPG are to be con - sulted regarding transfer pricing of intangibles. 4.2 Hard-to-Value Intangibles Officially, Switzerland did not adopt the hard-to-value intangibles (HTVI) approach as defined in Chapter VI of the OECD TPG as this approach seems to collide with long-standing case law and the tax laws them - selves. In particular, the question is whether ex post data can influence open or final tax assessments. However, in general, due to the adherence to the OECD TPG, the OECD’s approach regarding HTVI should be applicable in Switzerland. Open Tax Assessments If a tax assessment is not yet final, a transfer pricing adjustment requires, inter alia, an obvious mismatch between the value of the transferred intangible and the compensation received, and that this mismatch was recognisable for the persons in charge (see 1.1 Stat- utes and Regulations ). This mismatch is evaluated ex ante, namely at the time the transaction was settled. The hard-to-value intangibles (HTVI) approach, how - ever, assesses the conditions of the transaction ex post and does not provide an answer to whether a potential mismatch was ex ante already obvious and, thus, recognisable. Hence, the HTVI approach – as mentioned above – does not seem to fit into pre-exist - ing domestic law and the respective case law. So far, however, there is no precedent on this issue. Final Tax Assessments If a tax assessment is already final and legally bind - ing, an adjustment is generally only possible if the
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