SWITZERLAND Law and Practice Contributed by: René Matteotti, Monika Bieri, Daniel Schönenberger and Manuel Ulrich, Tax Partner AG
analysis (versus the safe haven interest rates of 2% per annum for 2014 and 1.5% per annum for 2015. The taxpayer determined the 2.5% per annum interest rate starting with a 0.75% per annum reference rate, adding a 0.25% per annum commission for the remu - neration of transactional services and then adding 150 basis points as an individual market risk premium. It seems, however, that the taxpayer did not prepare a benchmarking study according to the prerequisites of the OECD Transfer Pricing Guidelines. The Zurich Tax Administration, however, based its calculation on the parent’s refinancing costs, referencing a publicly issued bond at 0.83% per annum. In addition, it took into account a mark-up of 0.25%, which was applied analogous to the safe haven circular compensating the financing function, arriving at an arm’s length inter - est rate of 1.08% per annum. The lower court initially ruled that only the interest rate exceeding the safe haven maximum interest rates of 2% (2014) and 1.5% (2015) constituted a hidden divi - dend distribution. On appeal, the Federal Supreme Court clarified that tax authorities may (but need not necessarily) apply a lower interest rate than the safe haven interest rate (if proven) if the taxpayer cannot justify its higher than the maximum safe haven inter - est rate. However, the federal supreme court argued, in addi - tion, that the margin has to be determined through consideration of the arm’s length principle and not by referencing the safe haven circular margin. Overall, this ruling reaffirms the importance of robust documentation for market-based interest rates, par - ticularly when the interest rates applied on intercom - pany financing transactions deviate from the safe haven guidelines. Decision of the Zug Administrative Court (A 2023 1) A legal entity based in the Canton of Zug, which is part of an international pharmaceutical group, acted as limited risk distributor as of 2018. For 2018, the company reported a negative operating margin of –21.8%. The cantonal tax administration objected to this margin as being non–arm’s length and instead
assessed the company with a margin of 1.1% which was the lowest value of the interquartile range of the benchmarking study. As a result, a profit adjustment in the amount of around CHF9 million resulted. The taxpayer filed an objection and countered that the three-year average (2016–18) stood at 1.2%, which would compensate for the low 2018 margin. During court proceedings, the taxpayer referred to the OECD TP guidelines, which allow the use of multi-year data to determine appropriate transfer prices. The taxpay - er concluded from this statement that it could also smooth the margin over several years. The Administrative Court in the Canton of Zug did not accept the line of reasoning provided by the tax - payer. It emphasised the principle of periodicity, which requires taxes to be assessed separately for each tax year. A subsequent “smoothing” of the margin over multiple years was deemed impermissible, especially as there were no extraordinary circumstances sub - stantiating the negative result in 2018. According to the court’s ruling, it is in line with the fundamentals of transfer pricing law that each business unit be taxed according to the economic substance of the value it adds. This analysis is carried out anew every year. Decision of the Federal Supreme Court (BGer 9C_301/2025) Under an intragroup licence, a Swiss software distrib - utor remitted royalties amounting to 60% of its sales and maintenance revenues to a Luxembourg group company. Several years later, the Geneva tax authori - ties opened supplementary tax assessment proceed - ings for prior periods. They argued that, having since gained a clearer picture of the group structure, the royalty rate level was not at arm’s length and the pay - ments should therefore be requalified as a hidden profit distribution. The Swiss Federal Supreme Court rejected the reopen - ing. It confirmed that supplementary tax assessment proceedings are intended to capture additional tax only where genuinely new facts or evidence emerge that were not on file and could not reasonably have been known when the assessment became final. They are not a mechanism to correct a completed assess - ment simply because the authority revisits the same record and reaches a different legal appraisal. A later
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