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Transfer pricing methods

Available methods

Which transfer pricing methods are used in your jurisdiction and what are the pros and cons of each method?

Swiss tax law prescribes the use of no specific transfer pricing methods. Therefore, the most appropriate method as described in the Organisation for Economic Cooperation and Development (OECD) Transfer Pricing Guidelines can be used. Tax administrations sometimes attempt to apply the newest version of the guidelines based on a dynamic interpretation of tax treaties, provided that there are no explicit reservations. The legality of a dynamic interpretation remains disputed in scholarly writing. The Swiss Federal Supreme Court, while not having unequivocally decided on the legality of the dynamic interpretation of tax treaties, has used newer versions of the commentary on the OECD Model Treaty to interpret older tax treaties.

Preferred methods and restrictions

Is there a hierarchy of preferred methods? Are there explicit limits or restrictions on certain methods?

Neither Swiss tax law nor case law or practice define a hierarchy of methods. Instead, the most appropriate method should be used.

Comparability analysis

What rules, standards and best practices should be considered when undertaking a comparability analysis?

There are no country-specific standards or best practices to be considered when undertaking comparability analysis. Where the available amount of local comparable data is insufficient, a geographically wider range of comparable data is considered acceptable.

Special considerations

Are there any special considerations or issues specific to your jurisdiction that associated parties should bear in mind when selecting transfer pricing methods?

The cost-plus method is generally used for routine services. However, the Federal Tax Administration issued a circular on 19 March 2004 stating that the application of the cost-plus method to financial services and management functions will only rarely prove to be the most adequate.

For wealth tax purposes, the fair market value of companies is sometimes evaluated by tax authorities in application of the Swiss ‘practitioner method’ instead of the internationally accepted discounted cash flow method. In certain cases, the Swiss method provides a welcome simplification; however, in others, it can be disputed. Sometimes this method is applied by the Swiss tax authorities as a backup for the transfer of participations when no market price is available.

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