SWITZERLAND Law and Practice Contributed by: René Matteotti, Monika Bieri, Daniel Schönenberger and Manuel Ulrich, Tax Partner AG
9.7 Allocation of Profits to Permanent Establishments (PEs) Switzerland attributes profits to permanent establish - ments based primarily on double tax treaty practice and OECD interpretative guidance (OECD Model Arti - cle 7 and the OECD Report on the Attribution of Profits to Permanent Establishments). In practice, Switzer - land generally follows an AOA-consistent approach, treating the PE as a functionally separate entity and allocating profits based on a functional analysis of functions performed, assets used and risks assumed. There is no safe harbour for PE profit attribution. The outcome is determined on a case-by-case basis, and contemporaneous documentation/functional analysis is key in audits. 10. Relevance of the United Nations Practical Manual on Transfer Pricing 10.1 Impact of UN Practical Manual on Transfer Pricing The UN Practical Manual on Transfer Pricing is of only minor importance in Swiss transfer pricing practice. 11. Safe Harbours or Other Unique Rules 11.1 Transfer Pricing Safe Harbours There are safe harbour rules that apply to thin capi - talisation and to interest rates that are regularly used by corporate taxpayers (see 9.1 Alignment and Dif- ferences ). Thin Capitalisation The SFTA published, on 10 October 2024, the updated thin capitalisation rules in its Circular Letter No 6a. In this circular, the maximum debt is determined accord - ing to maximum debt capacity to assets ratios, which apply for each asset category. No interest expense can be made on debt that surpasses this maximum debt amount (to be considered as constructive divi - dend distribution). Special safe haven rules might apply on the level of the Swiss cantons (eg, a maxi - mum debt to assets ratio of 6:7 in the canton of Zug).
Interest Rates Furthermore, the SFTA annually publishes circular letters providing inbound and outbound safe harbour interest rates on long-term intercompany loan receiva - bles and payables. The SFTA, in principle, allows taxpayers to deviate from the conditions set out in the above-mentioned circular letters if the taxpayer can prove that the applied interest rate is at arm’s length by perform - ing and providing a detailed transfer pricing analysis. Based on a recent court decision, the tax authorities can independently determine whether the interest rates are in line with the arm’s length principle, if the taxpayer deviates from these safe haven interest rates (see 14.2 Significant Court Rulings ). In particular, the interest rates published in the circulars do not repre - sent lower or upper limits for adjusting interest rates. 11.2 Rules on Savings Arising From Operating in the Jurisdiction Switzerland does not have any specific rules relat - ing to location savings and relies on the OECD TPG on this issue. However, Switzerland does not provide notable location savings in the sense of the OECD TPG as production and labour costs are compara - tively high. 11.3 Unique Transfer Pricing Rules or Practices Switzerland does not have unique transfer pricing rules and, in principle, adheres to the OECD TPG. 11.4 Financial Transactions Switzerland has no specific rules governing financial transactions. Financial transactions are treated in line with the principles of the OECD Transfer Pricing Guidelines. This is supported by the Q&A that was published by the SFTA in January 2024, also cover - ing questions and answers in connection with intra- group loans, making reference to the OECD Transfer Pricing Guidelines. Finally, reference is made to the safe haven interest rates and safe haven calculation regarding thin capital mentioned in 11.1 Transfer Pric- ing Safe Harbours .
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