SFTA published a detailed set of transfer pricing questions and answers

The SFTA’s questions and answers are clear and concise and aim at providing guidance on how certain technical transfer pricing topics should be addressed. The SFTA’s Q&A addresses four groups of topics:  

• The cost plus method, what it is and how it should be applied (9 questions)
• Withholding tax and how it applies to transfer pricing adjustments in different circumstances (7 questions)
• The transfer pricing treatment of stock option costs in (4 questions)
• Intercompany loans (21 questions)

There are a large number of interesting points in the Q&A, here we include just a small selection:

• In applying the cost plus method it is particularly important to pay attention to the way in which the cost base is defined. For example, financing costs, taxes and pass through costs would typically be ignored for the purposes of calculating the mark-up 
• Transfer pricing adjustments in Switzerland will result in an adjustment to the Swiss taxpayers’ taxable income and this is the sole responsibility of the Cantonal Tax Authorities. 
• Transfer pricing adjustments in Switzerland may also result in secondary adjustments which lead to the collection of WHT. This is the responsibility of the Swiss Federal Tax Authorities. 
• If a primary correction made by a cantonal tax administration is confirmed in whole or in part in the mutual agreement procedure, the question of secondary correction arises, i.e. the collection of withholding tax by the Swiss Federal Tax Authorities on the amount of the primary correction confirmed in the mutual agreement procedure. If the question of the collection of withholding tax is not regulated within the framework of a mutual agreement, the withholding tax must be levied on the amount of the non-cash payment if the material and procedural requirements for collection are met. 
• Swiss companies with a cost sharing agreement must increase the shared cost base by the amount of relevant stock based compensation 
• Swiss companies that borrow from related parties in foreign currencies must demonstrate that it was reasonable and appropriate to do so – for example because the functional currency of the Swiss company was denominated in that foreign currency.
• It is important that the credit rating of a transaction is estimated before benchmarking an intercompany loan and to distinguish between the credit rating of the borrower and the credit rating of the particular loan interest. 

The SFTA Q&A can be found here on its website in German and French. We are preparing an unofficial English transfer pricing and will publish it here shortly.  

If you have any questions on transfer pricing matters please do not hesitate to contact us.  

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