| Tax Authority: Cantonal Tax Authorities (tax assessments) and Federal Tax Administration (SFTA; competent authority) |
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| Statutory Law / Regulations / Guidelines: There are no specific references to transfer pricing in Swiss tax law. However, legal support for adjusting taxable profits of a taxpayer is established based on the arm’s length principle in Article 58 of the Federal Direct Tax Act on a federal level, as well as in Article 24 of the Federal Law on the Harmonization of the Cantonal and Communal Taxes on a cantonal level. In addition, there are various administrative directives describing safe-harbor regulations that allow for the setting of transfer pricing without any specific documentation (e.g., with regard to intercompany interest payments). |
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| Scope of Transfer Pricing Regulations: The Swiss Tax Law does not directly include a definition of the arm’s length principle nor does it specifically discuss transfer pricing between related parties. However, the legal basis for adjusting the profits on an arm’s length basis is found in Article 58 of the Federal Law on Direct Federal Tax of December 14, 1990, and Article 24 of the Federal Law on the Harmonization of the Cantonal and Communal Taxes of December 14, 1990. Only commercially justifiable expenditures are tax deductible; this provides the basis for adjustments to the profits under non-arm’s-length conditions. |
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| Reference to OECD Guidelines: The SFTA has instructed the cantonal tax administrations in its Circular Letter of March 4, 1997, to adhere to the OECD Transfer Pricing Guidelines for transfer pricing matters. |
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| Methods & Comparables: Switzerland accepts the five methods specified in the OECD Guidelines. There is no priority of methods, and the most appropriate method rule applies. Pan-European comparables are preferred and U.S. and Australian comparables may be accepted in certain circumstances. |
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| Documentation Requirements: There are no specific documentation requirements. However, if challenged by the SFTA, the taxpayer has to demonstrate that the transfer prices applied were based on sound economic and commercial reasoning in compliance with the arm’s length principle |
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| Audit Risk: The normal tax audit procedures are performed by the cantonal tax authorities. Generally the outcome of a transfer pricing investigation in Switzerland is negotiated, but if no agreement can be reached an adjustment is imposed. The Federal Tax Department is becoming more aggressive and intensifying audit procedures, especially regarding withholding tax in connection with hidden distribution of profits based on non-arm’s-length transactions and with respect to Swiss value added tax (VAT). |
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| Transfer Pricing Adjustments: Generally, the statute of limitations is five years after the taxable year in question, but in case of appeals, it is up to 15 years. |
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| Interest & Penalties: There are no specific transfer pricing penalties. General penalty rules apply, although penalties are only imposed in cases of fraud or negligence. Interest charges for late payment are due in case of adjustments. |
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| Advanced Pricing Agreements: APA procedure is available in Switzerland. |
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| Competent Authority: There is no formal procedure. |
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| Link to OECD Country Profile http://www.oecd.org |
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| Link to Relevant Government Sites Federal Tax Administration |
