SWITZERLAND Law and Practice Contributed by: René Matteotti, Monika Bieri, Daniel Schönenberger and Manuel Ulrich, Tax Partner AG
considered permissible. However, Switzerland tends to follow the AOA even if a tax treaty has not yet been updated regarding the new Article 7. 9.2 Arm’s Length Principle Besides the above-mentioned exceptions, devia - tions from the arm’s length principle can be seen in the implementation of the patent box and the notional interest deduction, which were introduced in connec - tion with the corporate tax reform that came into force on 1 January 2020. In line with BEPS Action 5, cantons are allowed to exempt income from patents and similar rights from taxation up to 90%. To determine the qualify - ing income, a top-down approach is used. Thereby, income from routine activities and trade marks is to be excluded, thus being subject to ordinary taxation. According to the SFTA, it is not necessary to deter - mine the income for routine activities and brand use by means of transfer pricing studies. Instead, for rea - sons of practicability, the law provides for fixed mar - gins. For the income of routine functions, a mark-up of cost plus 6% is defined, and concerning the income of trade marks, as a rule of thumb, 1% of the turnover of the patent box is regarded as appropriate. However, the right to prove higher or lower income from trade marks based on the arm’s length principle is reserved. The law also provides for simplifications in connection with the notional interest deduction (only available in the canton of Zurich). The special feature of the Swiss notional interest deduction is that it is only possible on the so-called security equity. For this purpose, core and security equity must be determined in a first step. The law does not require the preparation of a transfer pricing study for this purpose. For reasons of practicability, the regulation rather provides for equity backing rates for the individual assets, following the circular on thin capitalisation and its inversed maximum safe haven debt capacity rates (for example, for intercompany loans, a mini - mum equity rate of 15% is required). If these rates are exceeded, there is security capital on which an imputed equity interest deduction can be claimed. In general, this interest is also not determined on the basis of the arm’s length principle. Rather, the law pro -
vides for the interest rate for ten-year federal bonds. However, to the extent the security capital is attribut - able to receivables from related parties, an interest rate corresponding to the arm’s length principle may be applied. 9.3 Impact of the Base Erosion and Profit Shifting (BEPS) Project In general, the BEPS project had a major impact on the Swiss tax law landscape. Based on BEPS Action 5, Switzerland agreed to spontaneously exchange certain tax rulings, and based on BEPS Action 13, to the exchange of country-by-country reports (see 6.1 Sharing Taxpayer Information ). Moreover, Switzerland abolished the administrative practices on Swiss finance branches and principal companies in 2019. The BEPS project raised the awareness of transfer pricing considerably, prompting the tax administrations – at cantonal and federal level – to address this issue more frequently and persis - tently (see 1.2 Current Regime and Recent Changes ). 9.4 Impact of BEPS 2.0 Switzerland is in favour of long-term, broad-based multilateral solutions instead of a multitude of (con - fusing) national measures. Thus, in principle, Switzer - land supports the parameters of the discussed rules regarding the international profit reallocation of large multinational entities (MNEs) according to Pillar One as well as the minimum taxation global anti-base ero - sion (GloBE) rules according to Pillar Two, in order to restore legal certainty for countries and corporations. Pillar One Regarding Pillar One, Switzerland advocates that the interests of small, economically strong countries be taken into account in its implementation. Although, in principle, Pillar One works in both directions, Swit - zerland exports much more than it imports, as it cre - ates attractive location conditions for a wide range of industries while is itself a small but nevertheless important consumer market. It is not yet clear whether/how Switzerland will imple - ment Amount B. See our remarks regarding Pillar One Amount B in 9.5 Pillar One Amount B .
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