New transfer pricing recommendations in Switzerland: an important turn towards transparency and international compliance!

In January 2024, Swiss tax authorities published specific transfer pricing recommendations for the first time, marking a significant step in the country's tax regulation. They have recently been supplemented by an FAQ (in French or German) drawn up by the Federal Tax Administration. 

These guidelines were developed with the aim of enhancing transparency and ensuring fair taxation of companies operating in Switzerland, while aligning the country's tax practices with international standards, particularly those of the Organisation for Economic Co-operation and Development (OECD).

Transfer pricing refers to the prices at which companies establish transactions between their different entities, especially when they are located in different tax jurisdictions. These transactions can include the sale of goods, provision of services, or transfer of intellectual property. Transfer pricing rules aim to prevent companies from artificially shifting profits from one jurisdiction to another in order to reduce their tax burden.

Formalisation of transfer pricing recommendations in Switzerland

The adoption of specific transfer pricing recommendations by Swiss authorities demonstrates their commitment to maintaining the integrity of their tax system while aligning with international standards. These recommendations are largely based on OECD transfer pricing principles, which are recognised as a global reference in this field.

In line with OECD guidelines, Switzerland's new transfer pricing recommendations emphasise the need to establish transfer prices at arm's length conditions, meaning prices that would have been agreed upon between independent parties under similar circumstances. The recommendations detail how to assess the arm's length principle in light of comparability analysis, selection of the most appropriate transfer pricing method, and provide specific recommendations for intangible assets, intra-group services, and financial transactions. Regarding documentation, although there is no obligation in Switzerland to prepare a Master file and a Local file (only the country-by-country report is mandatory under certain conditions), the obligation to cooperate under Swiss tax laws compels taxpayers to prove the "arm's length" nature of their transfer prices. Thus, documentation compliant with OECD transfer pricing principles is often necessary and recommended.

Swiss tax authorities also emphasise the need for increased international cooperation in transfer pricing. In a context of increasing globalisation of business activities, it has become essential for countries to collaborate and exchange information to detect and prevent aggressive tax practices. Switzerland's new transfer pricing recommendations thus encourage transparency and cooperation with other tax jurisdictions, in line with the principles outlined in the OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS).

In Switzerland, unlike in most other countries, it is possible to discuss and agree in advance on the tax consequences related to transactions or a particular transfer pricing policy that a taxpayer would like to implement (advance agreement or Ruling). The transfer pricing guidelines recommend applying such a ruling by submitting the request for an advance agreement on transfer pricing to cantonal and federal authorities. Taxpayers thus have the opportunity to discuss their transfer pricing policy in advance with cantonal and federal authorities.

The publication of the new transfer pricing recommendations in Switzerland reflects the commitment of tax authorities to ensure fair and equitable taxation of businesses operating in their territory. By aligning with international standards, especially those of the OECD, Switzerland strengthens its reputation as a responsible and transparent tax jurisdiction. While these recommendations do not have a mandatory character in Switzerland, they have the advantage of providing clear information on the Swiss tax authorities' vision of the application of transfer pricing in intra-group transactions. It is now strongly recommended for companies operating in Switzerland to maintain transfer pricing policies in line with practices advocated by Swiss authorities and to fully cooperate with reporting and documentation requirements. By adopting a proactive and transparent approach to transfer pricing, companies can not only avoid the risks of tax adjustments but also contribute to strengthening investor and authority confidence in the Swiss economy.

Recommendations for Swiss taxpayers

Faced with the announcement of new transfer pricing recommendations in Switzerland and the increased importance given by tax authorities to this area, Swiss companies are confronted with an evolving tax environment. Here are some recommendations for companies to adapt and comply with the new requirements:

• Review and update transfer pricing policies: Companies must review their existing transfer pricing policies and update them to ensure compliance with the new Swiss recommendations. This involves reviewing methods of calculating transfer prices, affected transactions, and necessary supporting documents. For companies that do not have such transfer pricing study, it is strongly recommended that they seek assistance in this area.
• Comprehensive and transparent documentation: It is essential for companies to maintain comprehensive and transparent documentation on their transfer pricing policies. This includes collecting relevant data, perform comparability analysis, and documenting the methods used to determine transfer prices.
• Staff training: Companies should invest in staff training. It is important for teams responsible for tax management to fully understand the requirements and implications of the new recommendations.
• Monitoring international tax developments: Given the cross-border nature of business transactions, companies must stay informed about international tax developments, including OECD TP guidelines and practices adopted by other countries. This will allow them to adjust their transfer pricing policies accordingly and remain compliant with international standards.
• Collaboration with tax authorities: Companies are recommended to maintain a collaborative relationship with Swiss tax authorities and to fully cooperate in case of information requests or audits. Open and transparent communication can help build trust between companies and tax authorities. In this regard, a request for an advance agreement on transfer pricing is recommended.
• Evaluation of tax risks: Companies must regularly assess tax risks related to transfer pricing and implement strategies to mitigate them. This may include conducting internal audits, engaging specialised tax advisors, and implementing rigorous compliance policies.

By following these recommendations, Swiss companies can better prepare for the challenges posed by the new transfer pricing recommendations and ensure tax compliance. A proactive and transparent approach to transfer pricing not only minimises the risk of tax adjustments but also strengthens the reputation and credibility of companies in the Swiss and international markets.

Conclusion

In conclusion, the announcement of new transfer pricing guidelines in Switzerland marks a significant step in the evolution of the Swiss tax landscape.

For Swiss companies, this represents both a challenge and an opportunity. They require a thorough review of transfer pricing policies and rigorous documentation, but they also offer the opportunity to strengthen tax compliance and the reputation of companies in the global market.

At Mazars, our dedicated Transfer Pricing team will support you in this complex area with a pragmatic and collaborative approach.

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Article written by Nathalie Pellanda Gaud and Edith Carla Toko