SWITZERLAND Law and Practice Contributed by: René Matteotti, Monika Bieri, Daniel Schönenberger and Caterina Colling-Russo, Tax Partner AG
reopen tax assessments as far back as the last ten fiscal years. 8.2 Transfer Pricing Documentation Concerning transfer pricing documentation, Switzerland legally only requires preparing a CbCR. There is no legal obligation to prepare a master or local file. However, in view of a potential challenge of the transfer prices by the tax authorities, it is none - theless advisable to have master and local files (or similar documentation) at hand. In practice, tax authorities increasingly expect local files (at last broadly in line with the OECD TPG) for Swiss companies to be prepared by taxpayers in the event of a tax audit. 9. Alignment With OECD Transfer Pricing Guidelines 9.1 Alignment and Differences Though the OECD TPG are not implemented into domestic law, the administrative practice has declared the OECD TPG as applicable. The importance of the OECD TPG for administrative practice is underpinned by the paper on transfer pricing published by the SFTA in 2024, which makes strong reference to the OECD TPG. Nonetheless, a caveat is made regarding the application of thin capitalisation rules and the determination of intra-group interest rates for loan receivables and loan payables both in Swiss francs and in foreign currencies. In this regard, the SFTA annually publishes safe haven interest rates that deviate from the arm’s length princi - ple as defined and agreed upon in the OECD TPG (see 11.1 Transfer Pricing Safe Harbours ). Taxpayers that rely on these safe haven interest rates are generally exempt from providing fur -
ther evidence to prove the arm’s length nature of the applied interest rate. However, any deviation may lead to an independent reassessment of the interest rate applied and the safe haven interest rates do not represent a lower limit of any pos - sible adjustment (for recent court cases see 14.2 Significant Court Rulings ). There is a long tradition in Swiss tax law of apply - ing the formulary apportionment method for the profit allocation between the Swiss head office of an enterprise and its foreign permanent estab - lishments. However, Switzerland now follows the OECD-authorised approach for the attribution of profits of permanent establishments (AOA). The FSC has, in its ruling in the matter of Swiss International Airlines, even shown sympathy for the application of the AOA also in domestic mat - ters, but ultimately left the question open. In this respect, it should be noted that Switzerland has numerous DTAs in force that are still based on the OECD Model Convention, where the applica - tion of the formulary apportionment method for the allocation of profits to permanent establish - ments was considered permissible. However, Switzerland tends to follow the AOA even if a tax treaty has not yet been updated regarding the new Article 7. 9.2 Arm’s Length Principle Besides the above-mentioned exceptions, deviations from the arm’s length principle can be seen in the implementation of the patent box and the notional interest deduction, which were introduced in connection with the corporate tax reform that came into force on 1 January 2020. In line with BEPS Action 5, cantons are allowed to exempt income from patents and similar rights from taxation up to 90%. To determine the qualifying income, a top-down approach is used. Thereby, income from routine activities and trade
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