The Transfer Pricing Law Review: Switzerland


Switzerland is a federal democracy. As such, the Swiss Federal Constitution grants both the federal government and the cantons the power to levy direct taxes. Federal income tax and corporate income tax are levied in accordance with the Federal Income Tax Act (FITA) of 14 December 1990. The cantons enact their own laws concerning cantonal income tax, wealth tax, corporate income tax and capital tax, but these laws must conform to the Federal Tax Harmonisation Act (FTHA) of 14 December 1990.

Taxes are levied by the Federal Tax Administration and the cantonal tax authorities.

As a member of the Organisation for Economic Co-operation and Development (OECD), Switzerland has accepted the Transfer Pricing Guidelines developed by the OECD and is actively implementing the recommendations of the OECD's Base Erosion and Profit Shifting (BEPS) project.

Switzerland relies heavily on the Transfer Pricing Guidelines as it has no specific transfer pricing regulations. Accordingly, the Federal Tax Administration has instructed cantonal tax administrations to apply directly the OECD Transfer Pricing Guidelines for all questions related to transfer pricing.2

Transfer price adjustment in Switzerland is based on the principle of the prohibition of harmful profit shifting between related parties. According to settled case law of the Swiss Federal Supreme Court,3 a transfer price can be adjusted when all the following conditions are met:

  1. a company provides a benefit without receiving an adequate consideration in return;
  2. the benefit was provided to a shareholder or related party;
  3. the benefit would not have been granted to a third party; and
  4. the disproportion between the benefit and the consideration was recognisable for the company.

If these conditions are met, the tax authorities will consider that harmful profit shifting has occurred; there is no need to prove that it was the parties' intention to evade paying taxes.

As previously mentioned, Switzerland does not have a specific piece of legislation defining and addressing transfer pricing. However, certain4 Swiss federal and cantonal tax laws address related issues, such as the arm's-length principle and hidden equity.

Legal bases for transfer price adjustment are, however, contained in most Swiss tax Acts governing income tax and corporate income tax,5 withholding tax6and value added tax7 (VAT).

Article 58 FITA forbids the deduction of unjustified expenses, meaning that all dealings with shareholders and related parties must be conducted at arm's length. For tax purposes, these unjustified expenses may be reintegrated into the company's taxable profits and profits realised due to insufficient transfer prices may be requalified as constructive dividends. Shareholders will be subject to income tax or corporate income tax on any constructive dividends.

Further, if the company is found to have distributed constructive dividends, these dividends will be subject to withholding tax of 35 per cent (in accordance with Article 4, Paragraph 1, Letter (b) of the Withholding Tax Act of 13 October 1965); if the withholding tax is not borne by the beneficiary, then the withholding tax is levied at the gross-up rate of 54 per cent. Beneficiaries of the constructive dividends may nevertheless request a total or partial reimbursement based on Swiss internal law (Article 24, Paragraph 1 of the Withholding Tax Act of 13 October 1965) or an applicable double tax agreement. A notification procedure to notify instead of paying the withholding tax may also be available under certain conditions. In the event of a hidden capital contribution, the capital contribution may be subject to stamp duty tax of 1 per cent (Article 5, Paragraph 2, Letter (a) of the Stamp Tax Act of 27 June 1973).

The Federal Tax Administration also issues directives in the form of circulars and circular letters that provide guidance on transfer pricing and related topics. These cover safe harbour rules (thin-capitalisation and interest rates),8 service companies9 and restructuring.10

The VAT Act of 12 June 2009 is the only legislation that explicitly refers to the requirement that transactions between related parties be at arm's length. It also defines the notion of 'related parties' for VAT purposes as:11

  1. the owners of at least 20 per cent of the nominal or basic capital of a business or of an equivalent participation in a partnership, or persons associated with them; or
  2. foundations and associations where there exists a particularly close economic, contractual or personal relationship. Pension schemes are not regarded as concerning closely related persons.

The Swiss Federal Supreme Court has defined the notion of 'related parties' as entities or persons with a close commercial or personal relationship,12 which it interprets very broadly. In particular, the Court considers that the granting of a service under unusual terms or conditions that do not reflect the market is an indication that there is a relationship between the parties.13 It is vital to know whether the transaction was conducted under these conditions because of a relationship between the parties, or if it could have occurred under the same conditions between independent parties.

Filing requirements

There is no explicit list of documents concerning transfer pricing that must be included in the tax filing. However, tax authorities may dispute certain transfer prices, and the taxpayer must demonstrate that the prices used in the transaction with a related party conform with the arm's-length principle and be able to provide commercial justification.

Since 1 December 2017, Swiss tax law requires multinational companies to submit a country-by-country report that complies with the requirements of Annex III to Chapter V of the OECD Transfer Pricing Guidelines. These will not be published and there is no initiative from lawmakers suggesting future publication.

Tax returns must be filed in one of the official languages of Switzerland (French, German and Italian).

Presenting the case

i Pricing methods

Switzerland relies on the OECD Transfer Pricing Guidelines concerning pricing methods.

Taxpayers may select the appropriate OECD-compliant pricing method to determine the arm's-length price. These include traditional transaction methods, such as the comparable uncontrolled price method (CUP method), the resale price method and the cost plus method. Also acceptable are transactional profit methods, such as the transactional net margin method and the transactional profit split method. The global formulary apportionment method is not considered OECD-compliant.

There is no hierarchy between the methods. The comparable uncontrolled price method is the preferred method and the transactional net margin method is the most common method.14

ii Authority scrutiny and evidence gathering

The cantonal tax authorities are responsible for assessing direct federal and cantonal taxes and the Federal Tax Administration plays a supervisory role. Further, tax authorities may audit taxpayers. Accordingly, taxpayers should retain all documents necessary to prove that transfer prices were made in accordance with the arm's-length principle. The burden of proof lies with the taxpayer for the justification of the expenses, and with the tax authorities regarding adjustments which increase the taxpayer's taxable income. In recent years, there has been an increase in the number of audits performed by Swiss tax authorities.

Decisions may be challenged before cantonal courts (for decisions made by cantonal authorities) and before the Swiss Federal Administrative Court (for decisions made by federal tax authorities). Decisions can be appealed to the Swiss Federal Supreme Court.

Intangible assets

Swiss tax legislation does not contain specific provisions relating to transfer pricing of intangible assets or hard-to-value intangible assets. Switzerland follows the OECD Transfer Pricing Guidelines for transactions involving intangible assets.


Tax rulings are a common practice in Switzerland and Advance Pricing Agreements (APAs) can be concluded with the tax authorities even though domestic tax law does not contain specific provisions. Taxpayers may request advance rulings from the Swiss tax authorities to determine how they will be subject to Swiss taxes and how much they will owe in Swiss taxes.

Bilateral or multilateral APAs are also possible in coordination with the State Secretariat for International Finance.

Since Switzerland is a federal state, often it is necessary to request a minimum of two rulings in transfer pricing cases.15 A ruling regarding withholding tax or stamp duty (or both) must be requested from the Federal Tax Administration, and a second ruling with regard to corporate income tax must be requested from the competent cantonal tax administration. In general, no fees are charged, but certain cantons levy fees.

The duration of APA procedures varies widely. The time necessary to receive a unilateral APA ranges from a few days to several months, depending on the complexity of the case and the competent tax administration. For bilateral or multilateral agreements, the duration is counted in years. The average duration of mutual agreement procedures concerning APAs closed in 2018 was 29 months.16 This average has decreased by three months compared to 2017 and 14 months compared to 2016. Although there is currently no OECD requirement for the duration of APAs, Switzerland considers such procedures essential for legal certainty and the attractiveness of Switzerland as a business location.17 Therefore, Switzerland is striving to speed up APA procedures, while at the same time giving priority to achieving the best possible results in each case.

In addition to providing legal certainty for complex and high-risk transactions and preventing double taxation, the system of advance rulings reduces the number of tax-related disputes that are litigated before the courts. However, it is important to consider the exchange of information aspect before filing a ruling request as Switzerland is part of the international spontaneous exchange of information on tax rulings, even if the ruling itself will not be exchanged. Therefore, the possible consequences of an APA request must be carefully considered.

Mutual agreement procedures and international arbitration may also be used in an international dispute.


The Swiss tax authorities do not usually perform transfer pricing investigations. However, based on the ordinary taxation procedure, the assessment authorities shall review the taxpayer declaration and carry out the necessary investigations (Article 130, Paragraph 1 FITA).

In particular, the Swiss tax authorities are allowed to review information submitted by the taxpayer under its yearly tax return and request additional information. This is related to the Swiss tax authorities' obligation to determine all the relevant facts to assess the taxation and to take into consideration only facts they consider as proven.

Swiss taxpayers submit tax returns on a self-assessment basis. In this respect, the Swiss tax authorities can also consider that the tax return is complete and that no further investigation is necessary. Investigations are, therefore, not automatic, including for transfer pricing issues.

Swiss tax authorities can open an investigation following submission of the tax return for the relevant tax period. The time limit for tax authorities to proceed with investigations depends on the tax concerned.

For corporate income tax, this right is generally limited to 10 years and can be extended by up to 15 years by the tax authorities after the close of the relevant tax period. Indeed, the 10-year statute of limitations can be interrupted by various official acts, such as a complaint, an appeal or revision proceedings (Article 120, Paragraph 2 FITA). This includes any official communications from the tax authorities to the taxpayer that aims at interrupting the statute of limitations. In practice, a simple letter announcing the interruption is generally considered sufficient, even in cases where a tax assessment has yet to be issued.

For withholding tax, this right is generally limited to five years after the end of the calendar year in which the tax claim arose. Unlike corporate income tax, there is no absolute statute of limitations. As a result, the tax authorities can interrupt the five-year period by official communications without limitation, unless they act against the general principle of good faith.

Taxpayers can adjust their tax return, once submitted, as long as the tax authorities have not issued a final tax assessment. After receiving the final tax assessment, taxpayers can lodge a written formal complaint against the assessment notice with the assessment authority within 30 days. If the formal complaint is brought against a tax notice that sets out extensive grounds, the formal complaint may, with the consent of the appellant and the other petitioners, be referred directly as an appeal to the Cantonal Tax Appeals Commission (Article 132, Paragraph 2 FITA).

After receiving a written formal complaint, tax authorities may proceed with new tax assessments and may adjust their first decision in favour or in disfavour of the taxpayer. Once the protestation decision (a second decision taken by the tax authorities after the first tax assessment) is notified to the taxpayer, the latter has 30 days to lodge an appeal against this decision to the Cantonal Tax Appeals Commission.


i Procedure

From a procedural perspective, the general limitation period of 10 years after the close of the relevant tax period can be extended to 15 years for corporate income tax purposes, following an official act that interrupted the statute of limitations. For withholding tax purposes, the general limitation period of five years after the end of the calendar year in which the tax claim arose does not suffer any limitation if officially interrupted.

A final tax decision can also be revised in favour of the taxpayer, provided certain conditions are fulfilled (e.g., significant facts or decisive evidence is discovered (Article 147, Paragraph 1 FITA)). This procedure must, however, be filed either within 90 days of discovery of the grounds for revision or, at the latest, within 10 years of notification of the final tax decision (Article 148 FITA).

Upon submission of their tax return, taxpayers can generally expect to receive a final tax decision from the tax authorities within one to two years. This timeline mostly depends on the tax authorities' requests for information and the taxpayers' cooperation with tax assessment decisions. If the taxpayer does not agree to the specified taxation and lodges a written appeal with the tax authorities, this procedure can take up to an additional two years. A later appeal to the Cantonal Tax Appeals Commission is generally subject to the same waiting period.

As a result, after receipt of the first tax decision from the tax authorities, a procedural process with the Swiss Federal Supreme Court generally lasts from six to eight years.

The initial process before the tax authorities (submission of the tax return and written formal complaint to the same tax authorities) generally allows taxpayers to disclose all relevant facts and evidence. Even once the procedure goes before the Cantonal Tax Appeals Commission, new evidence is still acceptable as the Commission has powers to review all facts and the law (Article 142, Paragraph 4 FITA). Any other higher jurisdiction where an appeal is lodged (a superior cantonal court or the Swiss Federal Supreme Court) is, however, restricted in its power to review the facts.

ii Recent cases

Case law involving transfer pricing issues is quite rare in Switzerland. Exceptionally, at the end of 2019, the Swiss Federal Supreme Court rendered two rulings on transfer pricing.

In the first case,18 the Swiss Federal Supreme Court addressed the question of transfer pricing in cross-border (Switzerland–Seychelles) transactions between companies of the same group. The Swiss Federal Supreme Court restated that in lieu of specific transfer pricing legislation, the OECD Guidelines and the arm's-length principle should be applied. In this case, the Swiss Federal Supreme Court found that an asymmetrical relationship between a company's losses and the services it provides and its expenses, along with insignificant added value to the services provided by the subsidiary, are sufficient evidence that the price of the services provided by the subsidiary was disproportionate. In this case, the burden of proof was reversed and it fell on the company to show that the cost of the services in question was commercially justified. Finally, with regard to the method used, the Swiss Federal Supreme Court emphasised that for the CUP method to be used, the economics of the situations taken into account must be sufficiently comparable. In this respect, five areas of comparability must be examined: the characteristics of the goods or services transferred; the functions performed by the parties (taking into account the assets used and the risks assumed); the contractual clauses; the economic situation of the parties; and their industrial and commercial strategies. If these factors cannot be established, then the determination of the arm's-length price must be carried out using other methods, including the cost plus method.

The second case19 involved a Swiss company and its subsidiary in Guernsey, a low-tax jurisdiction. In this case, the Swiss parent entity argued that the hidden contribution it had made to its subsidiary was wrongly equated with a hidden profit distribution under Article 58, Paragraph 1, Letter (b) FITA and that the immediate adjustment of its profit by the Geneva tax authorities was erroneous.

Previously, in the case of a parent company that had overpaid its (foreign) subsidiary, the Swiss Federal Supreme Court ruled that the write-backs of the profit of the parent company had to be made. The Court clarified that, since all the conditions for considering the payment as a dividend were met, it was not necessary to examine whether there was a hidden profit distribution or a hidden contribution, since the payment must be included in the parent company's taxable profit in both cases.

In this case, in the opinion of the Swiss Federal Supreme Court, there is no reason why the result should be any different when a parent company receives no, or insufficient, compensation for services provided to its subsidiary. A clawback is already justified under the tax correction provision in Article 58, Paragraph 1, Letter (b) FITA. Several authors also take the view that a clawback is justified in such a case. However, other authors believe that the shareholder is not liable to tax, since the administration cannot require the parent company to make a profit off its own subsidiary. However, this is not compatible with the constant case law of the Swiss Federal Supreme Court, which states that transactions between companies of the same group must be conducted as if they were carried out with third parties in the free market. Even the authors supporting the latter position reserve the possibility of a clawback when there is an abuse of rights, such as when a shareholder provides a service that favours a foreign subsidiary, which then distributes its profits in the form of dividends to the shareholder, who benefits from the application of the Swiss participation exemption. This is precisely what happened in the case before the Swiss Federal Supreme Court: the subsidiary distributed a considerable portion of its profit as a dividend and the parent company was able to benefit from the application of the participation exemption.

Secondary adjustment and penalties

Provided a non-arm's-length transaction is considered by the tax authorities, such as a hidden dividend distribution or interests received against a loan considered as insufficient, a Swiss withholding tax of 35 per cent may be levied. Secondary adjustments (e.g., transfer of an amount representing the adjustment to its foreign parent) are also subject to this 35 per cent withholding tax (or 54 per cent if not paid directly by the transaction's beneficiary) provided it has not been agreed in a mutual agreement procedure.

A partial or full reimbursement of the withholding tax withheld may be claimed in accordance with double tax treaties and Swiss internal law. Late interest fees of 5 per cent may also be applicable without a possibility to claim full or partial reimbursement.

Aside from the penalties for non-compliance with the CbC reporting obligation, there are no specific transfer pricing penalties, but general penalty rules apply. Under the ordinary tax procedure and provided a non-arm's-length transaction is considered by the tax authorities, penalties do not generally apply in practice and late interest fees are privileged. However, penalties may occur, in particular where tax fraud is considered.

Penalties are generally assessed in view of the taxpayer's fault. It can be challenged during the administrative or criminal procedure by giving relevant evidence or facts, or during later legal proceedings in front of the Swiss courts up to the Swiss Federal Supreme Court.

Broader taxation issues

i Diverted profits tax and other supplementary measures

Under Swiss tax law, there is no specific regulation about transfer pricing issues. Tax authorities should, however, follow OECD Transfer Pricing Guidelines as disclosed under Circular No. 4 of the Swiss Federal Tax Administration, dated 1997, revised in 2004. This Circular provides a general application of the arm's-length principle to determinate taxable income of service companies. Those generally applicable principles have not been supplemented by any other regulations.

ii Double taxation

Switzerland has concluded double taxation treaties with over 90 countries. If double taxation occurs with a country Switzerland signed a double taxation treaty with or if there is a risk of double taxation occurring, Swiss resident taxpayers, both individuals and corporations, can ask the Federal Department of Finance in Bern to initiate a mutual agreement procedure.

In accordance with the OECD Model Tax Convention on Income and Capital (OECD MC), taxpayers can initiate a mutual agreement procedure within three years of the first notification of the action resulting in double taxation (Article 25, Paragraph 1 OECD MC). Most double taxation treaties concluded with Switzerland provide this three-year time limit, but each double taxation treaty must first be reviewed.

An arbitration procedure is also available under a number of double taxation treaties concluded with Switzerland. In general and in contradiction with mutual agreement procedures, taxpayers can only file a request for arbitration with one of the competent authorities, for example, if an agreement has not been reached after two years (Article 25, Paragraph 5 OECD MC).

To avoid double taxation, taxpayers can also request a ruling with the Swiss tax authorities before a transfer pricing transaction occurs. Swiss taxpayers generally choose this route; however, provided a foreign country decides to adjust a transfer pricing transaction, double taxation may still occur. In this respect, APAs can also be chosen by Swiss taxpayers to confirm the tax treatment under the relevant double tax treaty, and obtain an agreement between Swiss tax authorities and foreign tax authorities.

iii Consequential impact for other taxes

Even if transfer pricing adjustments are generally analysed from an income tax and withholding tax perspective, VAT consequences have to be considered. Under the Swiss Federal VAT Act, the arm's-length principle also applies for transactions between parties considered as related. Consequently, an adjustment required by the tax authorities may have an impact on the tax levied. Penalties and interest may also apply if an adjustment is discovered during an audit.

Outlook and conclusions

Switzerland does not have any specific transfer pricing legislation and there is currently no indication that it will in the near future. However, Swiss authorities, including both the administration and the courts, are increasingly influenced by the OECD, which includes, as mentioned, the BEPS project. This means that any taxpayer active in Switzerland should remain extremely cautious when dealing with transfer pricing issues and should always take into account the OECD Transfer Pricing Guidelines.



1 Jean-Blaise Eckert is a partner and Jenny Benoit-Gonin is an associate at Lenz & Staehelin.

2 Federal Tax Administration, Circular Letter of 4 March 1997; renewed by Circular No. 4 of 19 March 2004.

3 ATF 115 Ib 274, consid. 9b.

4 e.g., Article 58 FITA and Article 24 the Federal Tax Harmonisation Act.

5 Article 58 FITA for corporate income tax at the federal level; Article 24 FTHA for corporate income tax at cantonal and municipal level.

6 Article 4, Paragraph 1 of the Withholding Tax Act and Article 20, Paragraph 1 of the Withholding Tax Ordinance for the taxation of constructive dividends.

7 Article 24, Paragraph 2 of the VAT Act.

8 Circular No. 6/1997.

9 Circular No. 4/2004.

10 Circular No. 5/2004.

11 Article 3, Letter (h) of the VAT Act.

12 Federal Supreme Court 2C_177/2016, 30 January 2017, Section 4.3.

13 ibid.

14 Greter M, Häni M, Streule F and Dietschi M, 'Transfer Pricing in Switzerland: Overview' (Thomson Reuters Practical Law), accessed 26 May 2020.

15 Bottini P, Schreiber S, Lehmann D and Mühlemann M, 'Transfer Pricing in Switzerland' (Law Business Research, Lexology, 29 April 2019).

16 State Secretariat for International Finance (SIF), 'Les procédures amiables fondées sur les conventions contre les doubles impositions conclues par la Suisse – Statistiques 2018', 3 December 2019.

17 ibid.

18 Swiss Federal Supreme Court 2C_343/2019, 27 September 2019.

19 Swiss Federal Supreme Court 2C_1073/2018, 20 December 2019.

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