SWITZERLAND Law and Practice Contributed by: René Matteotti, Monika Bieri, Daniel Schönenberger and Caterina Colling-Russo, Tax Partner AG
2. Definition of Control/Related Parties 2.1 Application of Transfer Pricing Rules Swiss tax law – except VAT-legislation (see more in 1.1 Statutes and Regulations ) – does not include an explicit definition of the terms “associated enterprises” , “related parties” or “controlled transactions” . According to the FSC, for income tax purposes, related parties are to be considered as entities with close commercial or personal relationships, where any close relationship between the parties involved in the transaction is enough. According to the Swiss understanding of the term “related parties” , direct or indirect control (participation in management or capital) in itself is not deci - sive. The crucial question is whether the tested transaction was conducted under the given conditions only as a consequence of the asso - ciated relationship. In practice, some cantonal tax administrations tend to apply the definition of “associated entities” set forth by the OECD. Furthermore, according to the FSC, “associated enterprises” or “related parties” can be assumed if the conditions agreed upon by the involved parties apparently do not meet the arm’s length standard. 3. Methods and Method Selection and Application 3.1 Transfer Pricing Methods Swiss domestic tax laws or practices do not pro - vide specific transfer pricing methods. Neverthe - less, as Switzerland adheres to the OECD TPG, all the usual transfer pricing methods are admis - sible ( “most appropriate method” approach). However, according to the SFTA circular of 2004, the cost plus method is, in general, not to be
seen as an appropriate method for financial ser - vices or management functions. 3.2 Unspecified Methods As Switzerland adheres to the OECD TPG, and these do not exclude the use of unspecified methods, such methods can indeed be applied. However, if an unspecified method is intended to be applied, as the TPG specify, it should be explained why the methods described by the TPG themselves are not considered appropri - ate for the case at hand. 3.3 Hierarchy of Methods As Switzerland generally follows the OECD TPG, the hierarchy of the transfer pricing methods as stipulated in the OECD TPG is also applicable in Switzerland. However, in individual decisions, the FSC has held that there is no fixed hierarchy of methods, meaning that the most appropriate method should be used according to the case at hand. In other rulings the FSC has held that the hierarchy of methods as stipulated in the OECD TPG should in fact be followed. In a recent deci - sion by the Swiss Federal Administrative Court, it was ruled that the SFTA has to respect the hierarchy of methods according to the OECD’s TPG. In practice, the three traditional methods – ie, the comparable uncontrolled price (CUP) meth - od, the resale price method and the cost plus method – are still preferred by the tax adminis - trations. Furthermore, the CUP method enjoys preference over the other two traditional meth - ods in the case of comparability. However, the transactional net margin method (TNMM) is the most commonly used method in Switzerland for determining transfer prices for services (corpo - rate services, contract manufacturing services, contract R&D services), and routine distribution,
348 CHAMBERS.COM
Powered by FlippingBook