SWITZERLAND Trends and Developments Contributed by: René Matteotti, Monika Bieri, Daniel Schönenberger and Manuel Ulrich, Tax Partner AG
Tax Partner AG Talstrasse 80
8001 Zurich Switzerland Tel: +41 44 215 77 77 Email: taxpartnerinfo@taxpartner.ch Web: www.taxpartner.ch
Introduction Switzerland continues to use the OECD TP Guide - lines (TPG) as soft law, while maintaining certain local specificities (for example the application of unilateral safe-haven rules in intercompany financing). Follow - ing publications by the Swiss tax authorities in the recent past, the arm’s length principle is upheld as the cornerstone of intercompany pricing, requiring related parties to price transactions as if they were dealing at arm’s length. While Switzerland has not introduced statutory transfer pricing documenta - tion requirements, taxpayers must substantiate their adherence to the arm’s length principle to comply with their obligation to co-operate with authorities. There - fore, the preparation of appropriate transfer pricing documentation is recommended. Furthermore, finan - cial intercompany transactions remain a focus area during tax audits. This article presents noteworthy developments which may have an impact on MNE Groups’ transfer pricing policies in 2026 and in the foreseeable future. These developments comprise the area of transfer pricing setting – ie, determination of cost base for routine activities as well as profitability management consid - ering the principle of periodicity following recent court cases at a cantonal and federal level. The develop - ments also comprise considerations on the interaction of transfer pricing and customs valuation which have become more important due to recent political devel - opments and the dynamic tariff landscape since 2025.
Application of the Cost-Plus Method to Hydropower Plants: Inclusion of Income Taxes and a Notional Return on Equity in the Cost Base and Determination of the Mark-Up Facts and subject matter of the dispute As a result of fiscal federalism and the cantons’ com - petence to levy their own income and profit taxes alongside the Confederation, issues of double taxa - tion arise not only in the international but also in the intercantonal context. It is generally accepted that the arm’s length principle also applies in principle in inter - cantonal situations. The Swiss Federal Supreme Court confirmed this in its judgment 9C_37/2023 of 11 June 2024. This case concerned a long-standing intercan - tonal dispute regarding the determination of taxable profits of hydropower plants operated through related separate legal entities. The central issue was which transfer pricing method should be applied to value the electricity supplied by a hydropower company to its shareholders, and, in particular, how the relevant cost base and profit mark-up should be determined. The hydropower company at issue produced electric - ity exclusively for its shareholders. The shareholders bore all operating, financing and tax costs pro rata and paid an additional dividend surcharge of 5% on paid- in share capital (the so-called “Dividend Model”). The tax authorities questioned whether this model com - plied with statutory requirements. Selection of the transfer pricing method The Federal Supreme Court first held that, for the pricing of electricity production and supply, a specific statutory provision applicable to hydropower plants limits the permissible methods to the traditional trans - action-based methods (ie, the CUP method, the resale price method, and the cost-plus method).
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