• Mischa Sollberger, Partner |
  • Johannes Uhde, Senior Manager |

The Swiss Federal Tax Authorities (“SFTA”) provide insights into their expectations towards taxpayers and views on key trends and hot topics in Swiss audits and rulings with the transfer pricing team from KPMG. The tide has turned - are you ready for the new environment? 


Historically, Switzerland has been seen as a relatively relaxed environment for transfer pricing audits and compliance. However, the tide has turned. Not only have transfer pricing topics become a focal point of tax audits both at the cantonal and the federal level – the Swiss tax authorities have also invested heavily in building up expert knowledge in transfer pricing. 

The transfer pricing team of the Swiss Federal Tax Authorities (“SFTA”) was built up in 2018 and consists of transfer pricing experts with in-depth expertise in the field. Their main task is to evaluate transfer pricing-related tax rulings as well as support both the cantonal and the federal tax audit teams in their field audits when transfer pricing topics are subject to examination. 

While the team still has a limited headcount, its caseload is high and steadily increasing. In their daily work, the team is looking into and evaluates cases at a granular level. 

Hot topics and key points to consider

KPMG has recently organized a joint webcast with the transfer pricing specialists from the SFTA. KPMG has identified various hot topics that are currently in focus within Swiss audits and ruling requests, and has discussed those in detail with the SFTA specialists. In the following blog series, the key take-aways from the discussion are presented.

Intangible Property ("IP") transactions

The cross-border transfer of IP is one of the most common cases that the SFTA handles, due to their complexity and the often sizeable values involved. As the associated risk of challenge by the tax authorities for multinationals are therefore high, it is recommended by the SFTA to proactively approach them and obtain a ruling in advance, to get clarity and avoid costly procedures at a later point in time. 

Application of DEMPE Concept

With respect to IP entering Switzerland, the SFTA has confirmed that the OECD’s DEMPE (Development, Enhancement, Maintenance, Protection, Exploitation) concept as first introduced with the OECD’s action plan against base erosion and profit shifting (“BEPS”) is important in practice. There is an expectation that for cross-border IP transfers, a detailed analysis of DEMPE functions carried out within the organization for the IP under assessment is documented and presented by the taxpayer, and that reference is made to the drivers overseen by the Swiss entity with respect to the overall value chain of the multinational. As additional documentation may be requested as part of the process, it is also important that transfer pricing documentation, intercompany agreements and the tax returns of the relevant companies are available and consistent with the information being submitted to the SFTA.  


Especially in cases where IP is exiting Switzerland, the SFTA relies crucially on documentation made available previously, as well as statements made by the taxpayer regarding the facts and circumstances of the IP before the exit. A “form over function” approach may still be taken by the SFTA, i.e. if a fact pattern is presented and ruled by the SFTA based on representations made by the taxpayer, the taxpayer cannot present a differing fact pattern upon exit of the same IP. 

IP Valuation

Regarding the valuation of the IP being transferred, KPMG understands that all efforts undertaken by the taxpayer with any method that is used in practice is well appreciated by the SFTA. For the SFTA to be able to form an opinion on the fair market value of the IP, the following points are important, especially if significant values are involved:

  • All assumptions made for the valuation should be documented and substantiated to the extent possible. 
  • Sensitivity analyses on key assumptions or parameters used could be helpful to showcase that assumptions have been tested and analyzed by the taxpayer.
  • Corroborative analyses should be proactively prepared and presented, i.e., the use of different valuation techniques to substantiate and defend the presented fair market value of the IP. 

Service Transactions

Service transactions are very common and represent a key intercompany transaction group for many Swiss taxpayers. At the same time, they are frequently subject to audit procedures.

OECD Simplified approach for low value adding services

With the OECD’s BEPS action plan, the concept of the “simplified approach for low value adding services” (“LVAS”) was first introduced. This approach allows taxpayers to make use of a simplified documentation procedure for service transactions that can be qualified as “low value adding”. 

KPMG has understood that the SFTA accepts the simplified approach for transfer pricing of LVAS in cases where the facts and circumstances allow for its application, i.e. activities which are auxiliary in nature and not core to the business activities of the multinational group. However, a detailed analysis and documentation is expected to be presented to showcase that the underlying service transactions are indeed “low value adding”, and the application is evaluated by the SFTA on a case-by-case basis.

Distinction between low- and high-value-adding-services

KPMG has gained the understanding that the SFTA is focusing on value creation within a multinational group, and thus is emphasizing that e.g. service transactions that are of different value contributions (e.g. administrative services vs. high-value strategic management services) should be treated differently from a Swiss transfer pricing perspective. These service categories should be remunerated in line with their value contribution, and in transfer pricing documentation efforts, the mark-ups on costs applied for these service categories should be separately benchmarked. The use of one benchmarking study for general services and its application for the documentation of various service categories of different value contributions will likely be regarded critically by the SFTA.

Further, KPMG has gained the understanding that the general consolidation of all service types within a Swiss taxpayer group under the simplified approach without thorough analysis, and the preparation of documentation to explain why these services all qualify as low-value-adding, will not be acceptable from the SFTA’s perspective. 

Pragmatic approaches towards shareholder costs and indirect service cost allocations through use of allocation keys

The SFTA is in KPMG’s understanding generally open for the application of pragmatic approaches in terms of identifying and deducting shareholder cost portions as flat percentages of the service cost base, or allocating service costs within the organization to service recipients through the use of allocation keys. It would expect that the percentages applied respectively the allocation keys used should be substantiated in detail, and it expects that it is demonstrated e.g. through specific examples that the application leads to an appropriate cost allocation. In any case, the SFTA would approach and analyze the topic on a case-by-case basis. 

In part 2 of our blog series, we will focus on the key take-aways from the SFTA regarding good transactions, financial transactions and TP documentation.

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