SWITZERLAND Law and Practice Contributed by: René Matteotti, Monika Bieri, Daniel Schönenberger and Caterina Colling-Russo, Tax Partner AG
less comply with the arm’s length principle and are determined by using the appropriate transfer pricing method. Concerning the selection of the method, the FSC noted in a ruling concerning VAT that the selection of the method is regarded as a legal question that the FSC is free to review. The result of the selected method, however, is regarded as a question of fact that can only be reviewed by the FSC for obvious incorrectness or arbitrariness. It goes without saying that the challenging the selected method and the prov - ing of obvious incorrectness or arbitrariness requires solid transfer pricing documentation, which is – however – not required by law. Administrative Guidelines As already set out, the SFTA instructed the can - tonal tax administrations by a circular letter of 1997, which was renewed in 2004, to directly apply the OECD TPG. The circular explicitly states that the profit margins for service com - panies must be determined in accordance with the arm’s length principle – ie, for each individual case on the basis of comparable uncontrolled transactions and with reference to the range of appropriate margins. The most relevant administrative guidelines in Switzerland in the area of transfer pricing can be seen in the circulars published by the SFTA providing safe harbour rules for thin capitalisa - tion and for intra-group interest rates (see 11.1 Transfer Pricing Safe Harbours ) where the arm’s length principle is not adhered to. 1.2 Current Regime and Recent Changes Overview As Switzerland adheres to the OECD TPG and has not established specific transfer pricing rules, the current regime and its development are, in general, reflected in the OECD TPG. However, the arm’s length principle was already
acknowledged before the first OECD TPG were published. Namely, in the matter of Bellatrix SA, the FSC confirmed in 1981 that for withholding tax purposes, the arm’s length principle is appli - cable with regard to transactions concerning the company’s shareholders. Recent Changes Prior to the progression of the OECD’s base erosion and profit shifting (BEPS) project, core transfer pricing issues were seldom touched on by the tax administrations. However, transfer pricing issues increasingly form part of routine audits today. Hence, taxpayers are more often confronted with detailed questions regarding transfer pricing matters (eg, requests regard - ing detailed transfer pricing documentation and explanations concerning comparables). Switzer - land itself also seems to be increasingly con - fronted with requests for administrative assis - tance in transfer pricing cases. In international cases, the main focus is on the transfer of functions, the transfer or licensing of intellectual property rights, the renumeration for the use of intellectual property, financial transac - tions, corporate management services and asset management services. Another main focus lies on transactions with foreign companies in low- tax jurisdictions. Recently, the OECD TPG were also referred to in a purely national, inter-canton - al FSC case where one company was domiciled in a high-tax and one in a low-tax canton. In another purely domestic FSC case the OECD TPG were cited by the court in connection with the inter-cantonal value attribution of an intan - gible.
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