SWITZERLAND Law and Practice Contributed by: René Matteotti, Monika Bieri, Daniel Schönenberger and Manuel Ulrich, Tax Partner AG
5.2 Secondary Transfer Pricing Adjustments Secondary adjustments in Swiss practice are adjust - ments that arise from imposing tax on a secondary transaction. A secondary transaction is a constructive transaction resulting from the transfer of excessive remuneration, characterised as constructive divi - dends, constructive equity contributions or construc - tive loans, depending on the jurisdiction. In Switzerland, a secondary adjustment represents the levying of withholding tax on the amount that qualifies as a hidden profit distribution in the context of trans - fer pricing. Secondary adjustments in Switzerland are therefore carried out exclusively by the SFTA, which has sole authority for levying withholding tax. If a primary adjustment made by a cantonal tax admin - istration is partly or fully confirmed in a mutual agree - ment procedure (MAP), the question of secondary adjustment arises – ie, the levying of withholding tax by the SFTA on the amount of the primary adjustment confirmed in the MAP. If the question of the levying of withholding tax is not covered in the mutual agree - ment, withholding tax is to be levied on the amount of the hidden profit distribution if the material and proce - dural criteria for collection are met. The mutual agreement concluded by the Swiss state competent body – ie, the State Secretariat for Inter - national Finance ( Staatssekretariat für internationale Finanzfragen , or SIF) – and the other state(s) may provide for the possibility that the taxpayer makes a repatriation payment of the amount of the confirmed primary adjustment by the Swiss cantonal tax authori - ty; this should generally take place within 60 days after the taxpayer’s acceptance of the mutual agreement. If the taxpayer performs this repatriation, the secondary adjustment will not be made – ie, the SFTA will not levy withholding tax on the amount of the adjustment con - firmed by the mutual agreement. The payment must be documented by the SIF, which forwards the rel - evant information to the SFTA. However, the existence of such a reference in the mutual agreement does not oblige the taxpayer to make a repatriation payment. If no repatriation payment takes place, withholding tax is levied on the amount of the primary adjustment in accordance with the applicable DTA.
tax administration becomes aware of new facts or evidence. As long as the taxpayer provided the tax administration with appropriate and correct transfer pricing documentation during the assessment relating to the ex ante valuation of the intangible in question, the administration is not entitled to come back to its own evaluation should ex post show that the value of the intangible is, in fact, higher. In this case, the ex post data would not qualify as new facts or evidence and thus would generally prevent the final tax assess - Switzerland recognises cost contribution arrange - ments and applies the OECD TPG correspondingly. However, Switzerland does not have special rules that apply to such arrangements. 5. Adjustments 5.1 Upward Transfer Pricing Adjustments Switzerland does not have specific rules regarding upward transfer pricing adjustments. Generally, pursu - ant to Swiss tax law, the financial statements prepared in accordance with commercial law are, in principle, binding for tax purposes. The tax administrations can only deviate from the financial statements in order to determine the taxable base if the statements violate accounting principles as set forth in the federal Code of Obligations, or if specific rules of the tax law require an adjustment. ment from being reopened and changed. 4.3 Cost Sharing/Cost Contribution Arrangements However, as long as the tax return has not yet been filed by the taxpayer, the balance sheet can, in accord - ance with the Code of Obligations, be adjusted with - out further restrictions. Once the tax return has been filed, a balance sheet adjustment is only permissible if it violates commercial law. Hence, if a transfer pric - ing issue arises once the tax return has been filed, an adjustment, in principle, will only be allowed if the original transfer prices also violate commercial law. Neither transfer pricing-specific returns nor related- party disclosures are required to be filed with the cor - porate income tax return.
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