SWITZERLAND Law and Practice Contributed by: René Matteotti, Monika Bieri, Daniel Schönenberger and Caterina Colling-Russo, Tax Partner AG
Interest Rates Furthermore, the SFTA annually publishes circu - lar letters providing inbound and outbound safe harbour interest rates on long-term intercom - pany loan receivables and payables. The SFTA, in principle, allows taxpayers to devi - ate from the conditions set out in the above- mentioned circular letters if the taxpayer can prove that the applied interest rate is at arm’s length by performing and providing a detailed transfer pricing analysis. Based on a recent court decision, the tax authorities can independently determine whether the interest rates are in line with the arm’s length principle, if the taxpayer deviates from these safe haven interest rates (see 14.2 Significant Court Rulings ). In particu - lar, the interest rates published in the circulars do not represent lower or upper limits for adjusting interest rates. 11.2 Rules on Savings Arising From Operating in the Jurisdiction Switzerland does not have any specific rules relating to location savings and relies on the OECD TPG on this issue. However, Switzerland does not provide notable location savings in the sense of the OECD TPG as production and labour costs are comparatively high. 11.3 Unique Transfer Pricing Rules or Practices Switzerland does not have unique transfer pric - ing rules and, in principle, adheres to the OECD TPG. 11.4 Financial Transactions Switzerland has no specific rules governing financial transactions. Financial transactions are treated in line with the principles of the OECD Transfer Pricing Guidelines. This is supported by the Q&A that was published by the SFTA
However, as the tax administrations are also fol - lowing a substance-over-form approach in the area of transfer pricing, the splitting up of the assumption of risks and functions is increasingly questioned by the tax authorities. In particular, the tax administrations will evaluate whether the personnel of a risk-bearing entity were effective - ly able to manage and control the assumed risks. 10. Relevance of the United Nations Practical Manual on Transfer Pricing 10.1 Impact of UN Practical Manual on Transfer Pricing The UN Practical Manual on Transfer Pricing is of only minor importance in Swiss transfer pric - ing practice. 11. Safe Harbours or Other Unique Rules 11.1 Transfer Pricing Safe Harbours There are safe harbour rules that apply to thin capitalisation and to interest rates that are regu - larly used by corporate taxpayers (see 9.1 Align- ment and Differences ). Thin Capitalisation The SFTA published, on 10 October 2024, the updated thin capitalisation rules in its Circular Letter No 6a. In this circular, the maximum debt is determined according to maximum debt capac - ity to assets ratios, which apply for each asset category. No interest expense can be made on debt that surpasses this maximum debt amount (to be considered as constructive dividend distri - bution). Special safe haven rules might apply on the level of the Swiss cantons (eg, a maximum debt to assets ratio of 6:7 in the canton of Zug).
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