Swiss TP Audits and Rulings - Are you ready?

Swiss Tax Authorities and KPMG provide the latest insights and views into trends and hot topics in transfer pricing audits and rulings.

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. 

Mischa Sollberger

Partner, Global Transfer Pricing Services, Value Chain Management

KPMG Switzerland

Blog author Johannes Uhde
Johannes Uhde

Senior Manager, Global Transfer Pricing Services

KPMG Switzerland

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.

Goods Transactions - Transfer pricing treatment of routine entities

In many cases KPMG has seen recently, especially local distribution entities, were experiencing significant losses in Swiss multinationals, and that was primarily due to COVID-related business disruptions. For many multinationals, this leads to uncertainty in terms of how these outcomes should be treated from a Swiss transfer pricing perspective, and whether action should be taken to e.g. provide support from the group to the local routine entities. 

KPMG has gained the understanding that the SFTA is increasingly faced with COVID19-related questions in their day-to-day work. The SFTA has the general view that a legal entity with a routine functional profile is expected to show an arm’s length profitability, and losses are not acceptable. However, the SFTA acknowledges extraordinary business circumstances caused by the pandemic.  

Their approach is focused on a case-by-case analysis, i.e. there are no generally accepted approaches towards the treatment of COVID-related disruptions. Any approach taken by the taxpayer (centralization of losses at principal and maintenance of routine remuneration according to policy, adjustment of routine remunerations to lower quartile, adjustment of routine remuneration towards break-even result, or proportional sharing of losses with routine entities) is expected to be substantiated with plausible explanations as to why a certain approach was taken. The greater the deviation from the general transfer pricing policy is, the more elaborate an appropriate substantiation should be.  

Financial Transactions

KPMG has supported various Swiss taxpayers in Swiss transfer pricing audits on the following financial transaction types:

a) The arm’s length pricing of interest rates for the provision of intercompany loans;

b) The arm’s length remuneration of parental guarantees.

KPMG understands that the SFTA has observed an increase in the use of market-based approaches to determine an arm’s length interest rate for intercompany loans as opposed to the use of the Swiss safe harbor rules. If a taxpayer chooses to apply a market-based approach, KPMG has the understanding that the SFTA places specific emphasis on a detailed analysis of the credit rating of borrowers and a sound substantiation of the applied methodologies as well as how implicit support is taken into account when pricing intercompany loans.

In terms of parental guarantees, in KPMG’s experience it is crucial that Swiss taxpayers do not have unremunerated guarantees in place. Further, a sound documentation is key to substantiate that parental guarantees are being remunerated appropriately. 

Transfer Pricing Documentation

The Swiss tax law still does not have a formal TP documentation requirement in place that requires multinationals to have contemporaneous OECD-standard TP documentation (master file and a local file) in place. This leads to a lot of Swiss multinationals to believe it is not worth preparing a TP documentation for the Swiss legal entities up-front. 

Nevertheless, KPMG has in recent years experienced that TP documentation is now on the standard information request lists for Swiss tax audits. Further, also in ruling procedures, the SFTA typically asks for a TP documentation. In KPMG’s understanding, the SFTA has the position that despite the tax law not prescribing a formal TP documentation, it is generally advisable to have a TP documentation in place. Without access to proper documentation, the SFTA would not be able to adopt a position during a ruling procedure. This results in long delays before a ruling request can conclusively be processed. In an audit situation, the SFTA would in extreme cases even need to proceed with an assessment without having the full picture, which could lead to adverse audit outcomes for the taxpayer.

In terms of documentation, KPMG has gained the following understanding of key items that are important for the SFTA:

  • Within your TP documentation, provide the SFTA with example calculations / specific examples wherever possible to showcase the practical application of a transfer pricing method or to explain an abstract fact pattern in the specific business circumstances. 
  • Spend time and effort on explaining in detail why specific transfer pricing methods are chosen over others, and why e.g. the application of a profit split method would not be making sense for a given intercompany transaction, as cantonal tax authorities are making increasing efforts to promote the use of such profit allocation methods, even for standard transactions.  
  • Explain the use of specific allocation keys and provide examples how the use of a specific allocation key corresponds to what happens “on the ground” for a given transaction.


In our view, the days when Swiss authorities were content to just accept any intercompany adjustment from foreign tax authorities without a highly technical analysis of the facts, circumstances and arm’s length treatment are over.

Taxpayers in Switzerland should be treating both their operational transfer pricing as well as transfer pricing compliance in line with the expectations of the Swiss tax authorities. It is ever more important from a Swiss perspective to be well documented on all transfer pricing matters. This will ensure that transfer pricing audits run smoothly and can be closed efficiently without delays and significant costs, that transfer pricing ruling requests can be processed efficiently and that significant Swiss and counterparty tax risks can be avoided or at least mitigated.