In the recent past, tax audits conducted by authorities in Switzerland have become more common. As such, Switzerland is becoming "more normal" like other countries. For Swiss groups however, this raises the question how to prepare for such tax audits.
With both the Federal Tax Administration and also various cantonal tax authorities having increased their focus on transfer pricing topics in the past, one could argue that Switzerland is merely catching up with other countries. For Swiss companies, this development is still new. As such, it is important to get familiar with recent experiences from such tax audits and evaluate how to best prepare.
The recent experience in Switzerland resembles very much the experience that has been made in other countries many years ago: extensive information is being requested, and discussions are not always up to the highest technical standards. At the moment, both tax authorities and taxpayers are gaining experience with such tax audits in Switzerland. It is now important for taxpayers to be properly prepared and not take Swiss tax audits too light-heartedly.
Lesson 1: Processes around tax audits
Especially companies belonging to a group headquartered outside of Switzerland should have clarity as to who is responsible for what when it comes to a Swiss tax audit. Who should be talking to the tax authorities? Who has the authority to decide which information is handed over? Who has decision power when it comes to a negotiation of the tax audit result?
In many groups, these questions are tackled on an ad-hoc basis – however, during a tax audit, time is often tight, and engaging in discussions about such processes when the tax authorities are already in the meeting room distracts from other important matters.
Lesson 2: Operational transfer pricing
While it may have been sufficient in the past to show that your overall TP system was ok, tax authorities have shown their ambition to also look behind the scenes and understand (and also audit) in more detail how the transfer pricing system is operated. How exactly have TP adjustments for limited risk distributors or contract manufacturers been calculated? How has a profit split booking been derived? How was the cost basis for a service charge determined? You need to be able to show to the tax authorities a transparent documentation of these calculations that can also be traced back to numbers that can be found in the accounting system. Simply providing messy excel files to the authorities is not sufficient and may actually be counter-productive.