Did you know that volume 19 of the publication series focuses on transfer pricing and customs valuation? This dissertation was published on July 14, 2004. It helps to understand international transfer pricing from a tax and customs perspective.
There is no special legislation for transfer prices in Switzerland. But the OECD transfer pricing guidelines and BEPS minimum standards set clear expectations. Companies must document their internal prices well. You must also show this data to the tax authorities if requested.
Key findings
- Switzerland follows the OECD transfer pricing guidelines and BEPS minimum standards.
- Companies must be able to justify their transfer prices on request and to the tax authorities.
- Transfer prices are relevant for the exchange of goods and services between affiliated companies.
- The documentation obligation includes compliance with international and customs regulations.
- Missing or inadequate documentation can lead to considerable additional tax claims.
What is transfer pricing and transfer pricing?
Transfer pricing is important for companies that are active in several countries. They help to regulate the exchange of goods and services between the parts of the company. Although there are no strict rules on transfer pricing in Switzerland, it is common practice for companies to keep detailed records.
Important terms and definitions
Transfer pricing determines the prices for internally exchanged goods and services. This applies to both physical and intangible goods. The OECD and Switzerland’s BEPS standards recognize five methods for determining an appropriate price:
- Price comparison method
- Cost plus method
- Resale price method
- Transaction-based net margin method
- Profit split method
An important principle is the arm’s length principle. He demands that internal prices should be similar to those that independent third parties would choose.
Areas of application of transfer pricing
Transfer pricing is particularly important for international companies. It is used for Group transfers and the valuation of real estate as well as for cost control. Many transfer pricing regulations in Switzerland are related to the calculation of the transfer price.
A study by the University of Zurich found that 15% of the largest Swiss companies took part in a survey. The internal role of transfer pricing for profit measurement and control is considered very important.
Documentation is crucial to ensure tax compliance. Companies must submit documents for transactions with related parties within 30 days. This shows how important it is to document transfer prices accurately and regularly.
| Industry | Percentage representation |
|---|---|
| Industrial goods, technology, vehicles | 22% |
| Trade | 17% |
Legal regulations and requirements in Switzerland
There are no specific transfer pricing laws in Switzerland. However, they follow the arm’s length principle. This principle is based on several aspects of tax law. The Swiss Transfer Pricing Guidelines are based on the OECD Transfer Pricing Guidelines of 2017. Such standards serve as guidelines for the Swiss tax authorities and courts.
OECD Transfer Pricing Guidelines
The OECD Transfer Pricing Guidelines provide specific guidance on transfer pricing. They mainly relate to service transactions between companies in the same group. One example is the use of the cost-plus method to ensure fair profits. A comparison with the free market is essential. Simple services may be subject to a general surcharge of 5% if they meet certain requirements.
BEPS minimum standards
In addition to the OECD transfer pricing guidelines, Switzerland has also committed itself to the BEPS minimum standards. These contain requirements such as country-by-country reporting. Swiss companies must therefore properly document their transfer prices. This ensures tax transparency and avoids double taxation.
There are simplified regulations for low-value services. They make it easier to determine the cost base correctly and to exclude taxes. No special transfer pricing regulations or extensive documentation obligations are required. This applies as long as the parent company’s turnover is below 900 million Swiss francs.
Summarizing table
| Criterion | Application in Switzerland | Necessary measure |
|---|---|---|
| OECD Transfer Pricing Guidelines | Used as a source of interpretation | Documentation of transfer prices |
| BEPS minimum standards | Implementation and compliance | Country-by-country reporting |
| Intra-group services | Cost-plus method | Comparison with market conditions |
| Administrative simplification | Applies to low added value | Flat-rate cost surcharge of 5% |
Determination and methods of transfer pricing
The determination of transfer prices is important in the digital economy. The arm’s length principle is central to this. It ensures that prices between companies are the same as between strangers. These prices must comply with tax laws and are carefully checked.
Arm’s length principle
This principle is very important for pricing. There are no specific laws on this in Switzerland, but the principle is applied. It makes pricing between companies transparent and comprehensible. Companies must show that their prices are justified by the market in order to meet tax requirements.
Business transaction-related methods
There are various methods for determining transfer prices. The important ones are:
- The price comparison method – compares prices of similar stores.
- The cost plus method – calculates the cost plus a mark-up. This requires a market comparison.
- The resale price method – uses the selling price minus a profit mark-up.
Winning methods
Profit methods are used for complicated transactions. For example, the transaction-based net margin method or the profit split method. These methods look at the overall profitability of corporate divisions. They are helpful if you do not have any similar stores for comparison. The OECD makes recommendations on this, most recently amended in 2017.
There are also special methods such as the cost sharing arrangement for intra-group loans. These methods help multinational companies and tax authorities to find fair prices. They also help to distribute and tax income correctly.
Documentation requirements and procedures in Switzerland
In Switzerland, it is important that companies document their transfer prices well. This includes the local file and the master file. These documents provide clarity and show important information.
Local file and master file
The local file describes the financial transactions and transfer prices in a country. It contains important data on the company and its local pricing policy. The master file provides a global insight into the Group. It shows how prices and transfer prices are handled internationally.
Obligations to submit to the tax authorities
Swiss companies must be able to show the documents if required. You have 30 days to submit the documents to the tax authorities. This requirement is based on the OECD guidelines.
This is particularly important for companies that operate internationally. Good documentation helps to avoid tax problems.
The following table shows the contents of the required documents:
| Document | Contents |
|---|---|
| Local File | Local transfer price data and operational information |
| Master File | Global business overview and transfer pricing policies |
Risks and challenges of transfer pricing documentation
Transfer price documentation in Switzerland must be precise and compliant. It must not only comply with the OECD guidelines and the BEPS minimum standards. It must also observe special rules in Switzerland.
Manipulation risks
One major risk is the possibility of transfer pricing manipulation. Especially when prices are set too low in order to gain tax advantages. Such action is illegal and carries severe penalties.
Poor documentation of transfer prices often leads to the tax authorities setting the prices themselves. This can result in severe penalties.
Tax and legal risks
Non-compliance with transfer pricing recommendations in Switzerland entails major tax risks. Companies must submit their documentation within 30 days of being requested to do so. Otherwise you could face financial penalties and investigations.
Inadequate documentation can also jeopardize a company’s credibility. And damage its market reputation.
Although there are no specific laws on transfer pricing in Switzerland, the OECD and BEPS standards help to reduce legal risks. Companies must set their prices in line with the market and international standards.
Compliance and enforcement of transfer pricing guidelines
It is important for Swiss companies to comply with the transfer pricing guidelines. In this way, they avoid financial and legal problems. A survey of 85 large companies in Switzerland revealed that 67% are well versed in transfer pricing. 56% of companies set transfer prices centrally.
Companies rate the importance of compliance with tax regulations highly. On average, this aspect was rated 4.4 out of 5 points. This makes it clear that compliance with transfer prices is more important than tax optimization.
Advanced Pricing Agreements (APA)
To ensure that companies comply with the rules, they can conclude Advanced Pricing Agreements(APA) with the tax authorities. These agreements provide security when setting transfer prices. They guarantee that the authorities will accept the prices. More than 20% of the turnover of many of the companies surveyed comes from internal transactions. This shows how important a clear transfer pricing system is.
The OECD Transfer Pricing Guidelines of 2017 emphasize the importance of the arm’s length principle. This principle promotes international consensus and prevents double taxation. For more information, visit the report on transfer pricing in Switzerland and the book on (Transfer Pricing Law in Switzerland). 27% of respondents are CFOs or finance managers. Your support for APAs is very important.