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Advance pricing agreements
Availability and eligibility
Are advance pricing agreements with the tax authorities in your jurisdiction possible? If so, what form do they typically take (eg, unilateral, bilateral or multilateral) and what enterprises and transactions can they cover?
Domestic tax law does not provide for specific advance pricing agreements; however, it is common practice to apply for advance Swiss tax rulings. These rulings contain a description of the facts (eg, a mechanism determining the transfer prices between related parties that is to be implemented and the resulting tax consequences). They may be limited to the application of tax law or an administrative directive on a specific case, or rule the determination of the tax basis. Such rulings are usually requested from a single tax administration. However, all tax consequences of a specific case are often formulated in one ruling request, which is subsequently filed with all of the relevant tax administrations, in particular the Federal Tax Administration.
In addition, a bilateral or multilateral advance pricing agreement can be requested through the State Secretariat for International Finance. This process is generally more time consuming than the unilateral process; therefore, fewer cases occur. Taxpayers usually negotiate separately with the tax administrations involved. However, in light of recent international developments in relation to the G20 and Organisation for Economic Cooperation and Development initiative to combat base erosion and profit shifting (BEPS), this option could become more popular as more countries endeavour to implement more reliable and speedy procedures. Popularity may ultimately depend on the jurisdictions involved.
Rules and procedures
What rules and procedures apply to advance pricing agreements?
In order to obtain an advance Swiss tax ruling, a case write-up along with the tax consequences must be filed with the competent tax administrations. If the description of the facts is precise and the legal questions involved are fairly standard, the tax commissioner may agree immediately and return a signed version of the filed ruling request. If the facts or the legal questions are complex, calls or personal meetings may be required to sort out the differences.
In transfer pricing cases, a minimum of two rulings are generally required. First, a ruling determining the withholding tax and/or stamp duty consequences is requested from the Swiss Federal Tax Administration. Second, a ruling determining the corporate income tax consequences is requested from the competent cantonal tax administrations.
A ruling with the competent tax administrations will be binding if:
- it is granted before the facts described in it are implemented;
- the description of the facts is specific and the implementation is strictly in line with the description in the ruling;
- it is filed with and granted by the competent tax administration (eg, the FTA and the relevant cantonal tax administration if withholding taxes and corporate income taxes are to be covered);
- it contains no obvious mistakes;
- the taxpayer concerned has taken measures which, on reversal, would result in considerable inconvenience; and
- it remains valid for as long as there is no change in law.
Bilateral or multilateral advance pricing agreements that are to be negotiated through the State Secretariat for International Finance follow the same principles.
How long does it typically take to conclude an advance pricing agreement?
The timeframe required to receive an advance Swiss tax ruling depends on the tax administrations that need to be contacted and the complexity of the facts and legal questions involved. In practice, it may take anything from a few days to several months to receive a legally binding ruling.
With regard to bilateral or multilateral advance pricing agreements that are to be negotiated through the State Secretariat for International Finance, timeframes are equally difficult to estimate. Regarding procedures aimed at removing existing double taxation finalised in 2016, the minimum duration was 12 days and the average duration 26 months, while in 2017 the minimum duration was a few weeks and the average duration 24 months. With regard to procedures aimed at preventing impending double taxation finalised in 2016, the minimum duration was one month and the average duration 43 months, while in 2017 the minimum duration was one month and the average duration 32 months. Depending on the difficulty of the international negotiations, the process may take considerable time. The State Secretariat for International Finance endeavours to provide a speedy process.
What is the typical duration of an advance pricing agreement?
The law does not define the duration of advance Swiss tax rulings. In practice, rulings are often either without a limited timeframe or last for three years. However, rulings remain valid only for as long as the actual facts are in line with the facts disclosed in them and the relevant law does not change. The duration of the validity of an advance pricing agreement will regularly be subject of negotiations between the parties. The Federal Tax Administration generally proposes a time limitation of several years.
What fees apply to requests for advance pricing agreements?
The Federal Tax Administration charges no fees for advance Swiss tax rulings. However, certain cantons levy fees. These relate to the work required and are not defined as a percentage of the transaction amount (ie, they are generally negligible).
In addition, the State Secretariat for International Finance levies no fees on the negotiation of bilateral or multilateral advance pricing agreements.
Are there any special considerations or issues specific to your jurisdiction that parties should bear in mind when seeking to conclude an advance pricing agreement (including any particular advantages and disadvantages)?
It is common practice to apply for advance Swiss tax rulings and a considerable advantage to receive a legally binding answer on the tax consequences of implementing, for example, a system of transfer prices in advance. However, as of 2018, Switzerland takes part in the international spontaneous exchange of information on tax rulings (Article 8(ff) of the Ordinance on the Administrative Assistance in Tax Matters 2016). Before applying for a ruling, taxpayers should clarify whether it will be subject to the international ruling exchange. On the one hand, rulings on transfer prices may include confidential information and the international exchange of information may pose certain risks. On the other hand, the rulings themselves are not exchanged. The risk of disclosure of confidential information, such as business secrets, to persons outside the tax authorities should also be considered in the case of bilateral or multilateral advance pricing agreements that are negotiated by the State Secretariat for International Finance, since they may need to be added to the transfer pricing local file under foreign law.
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