SWITZERLAND Law and Practice Contributed by: René Matteotti, Monika Bieri, Daniel Schönenberger and Manuel Ulrich, Tax Partner AG
ence, such estimates are rarely in favour of the taxpay - er. Although such an estimate is not to be considered as a penalty, it still has to be taken into consideration as a potential negative impact. The reason for that is that the courts will reject such an estimate only if the taxpayer can demonstrate that the transfer prices set by the tax administration are obviously flawed or arbitrary. Penalty Relief Federal and cantonal Swiss tax laws provide for a one-time voluntary disclosure, which leads to a com - plete penalty relief if specific statutory conditions are met. Outside the voluntary disclosure procedures, penalties charged are lower in the case of ordinary negligence and higher in the case of gross negligence. Collaboration with the tax administration in the course of a tax criminal investigation will usually result in a lower penalty. Regarding the question of culpability, the importance of state-of-the-art transfer pricing documentation should be emphasised. If a compa - ny does have such documentation, it will be difficult for the tax administrations to substantiate culpabil - ity. However, as indicated above, many disputes can be prevented or settled by negotiations with the tax authorities during a tax assessment or tax audit pro - cess (by filing formal complaints). Back Taxes It is worth noting that criminally relevant violations of the arm’s length principle may also trigger back tax - es. This is the case if the tax administration becomes aware of new facts or pieces of evidence that have not been disclosed to the tax administration with the tax return or during the ordinary tax assessment proce - dure. In order to levy back taxes, the tax administra - tion can reopen tax assessments as far back as the last ten fiscal years. 8.2 Transfer Pricing Documentation Concerning transfer pricing documentation, Switzer - land legally only requires preparing a CbCR. There is no legal obligation to prepare a master or local file. However, in view of a potential challenge of the transfer prices by the tax authorities, it is nonethe - less advisable to have master and local files (or similar documentation) at hand. In practice, tax authorities
increasingly expect local files (at last broadly in line with the OECD TPG) for Swiss companies to be pre - pared by taxpayers in the event of a tax audit. 9. Alignment With OECD Guidelines 9.1 Alignment and Differences Though the OECD TPG are not implemented into domestic law, the administrative practice has declared the OECD TPG as applicable. The importance of the OECD TPG for administrative practice is underpinned by the paper on transfer pricing published by the SFTA in 2024, which makes strong reference to the OECD TPG. Nonetheless, a caveat is made regarding the applica - tion of thin capitalisation rules and the determination of intra-group interest rates for loan receivables and loan payables both in Swiss francs and in foreign cur - rencies. In this regard, the SFTA annually publishes safe haven interest rates that deviate from the arm’s length principle as defined and agreed upon in the OECD TPG (see 11.1 Transfer Pricing Safe Harbours ). Taxpayers that rely on these safe haven interest rates are generally exempt from providing further evidence to prove the arm’s length nature of the applied interest rate. However, any deviation may lead to an independ - ent reassessment of the interest rate applied and the safe haven interest rates do not represent a lower limit of any possible adjustment (for recent court cases see 14.2 Significant Court Rulings ). There is a long tradition in Swiss tax law of apply - ing the formulary apportionment method for the profit allocation between the Swiss head office of an enterprise and its foreign permanent establishments. However, Switzerland now follows the OECD-author - ised approach for the attribution of profits of perma - nent establishments (AOA). The FSC has, in its rul - ing in the matter of Swiss International Airlines, even shown sympathy for the application of the AOA also in domestic matters, but ultimately left the question open. In this respect, it should be noted that Switzer - land has numerous DTAs in force that are still based on the OECD Model Convention, where the applica - tion of the formulary apportionment method for the allocation of profits to permanent establishments was
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