Switzerland vs “A AG”, September 2023, Federal Administrative Court, Case No A-4976/2022

Category: Comparability Analysis, Services and Fees, Transfer Pricing Methods | Tag: , , , , , , , , , , ,
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A Swiss company, A AG, paid two related parties, B AG and C AG, for services in the financial years 2015 and 2016. These services had been priced using the internal CUP method based on the pricing of services provided by B Ltd to unrelated parties.

Following an audit, the tax authorities concluded that the payments made by A AG for the intra-group services were above the arm’s length price and issued a notice of assessment where the price was instead determined using the cost-plus method. According to the tax authorities, the CUP method could not be applied due to a lack of reliable data.

Following an appeal the court of first instance ruled mostly in favor of the tax authorities.

A AG then appealed to the Federal Administrative Court.

Decision of the Court

The Federal Administrative Court ruled in favour of A AG.

According to the Court, the CUP method is preferred to other methods and other transfer pricing methods should not be applied in cases where data on comparable uncontrolled prices are available. Therefore, the tax authorities had not complied with the OECD transfer pricing guidelines.

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Swiss FAC A-4976-2022_2023-09-04





Related Guidelines

  1. TPG2022 Chapter II paragraph 2.46The cost plus mark-up of the supplier in the controlled transaction should ideally be established by reference to the cost plus mark-up that the same supplier earns in comparable uncontrolled transactions (“internal comparableâ€). In addition, the cost plus mark-up that would have been...
  2. TPG2022 Chapter III paragraph 3.40There are basically two ways in which the identification of potentially comparable third party transactions can be conducted....
  3. TPG2022 Chapter III paragraph 3.5In practice, this process is not a linear one. Steps 5 to 7 in particular might need to be carried out repeatedly until a satisfactory conclusion is reached, i.e. the most appropriate method is selected, especially because the examination of available sources of...
  4. TPG2022 Chapter II paragraph 2.3Traditional transaction methods are regarded as the most direct means of establishing whether conditions in the commercial and financial relations between associated enterprises are arm’s length. This is because any difference in the price of a controlled transaction from the price in a...
  5. TPG2022 Chapter I paragraph 1.82In this step the functions in relation to risk of the associated enterprises that are parties to the transaction are analysed. The analysis provides information about how the associated enterprises operate in relation to the assumption and management of the specific, economically significant...
  6. TPG2022 Chapter III paragraph 3.22Where the most appropriate transfer pricing method in the circumstances of the case, determined following the guidance at paragraphs 2.1-2.12, is a one-sided method, financial information on the tested party is needed in addition to the information referred to in paragraph 3.20 –...
  7. TPG2022 Chapter I paragraph 1.129In practice, it has been observed that comparability analyses for methods based on gross or net profit indicators often put more emphasis on functional similarities than on product similarities. Depending on the facts and circumstances of the case, it may be acceptable to...
  8. TPG2022 Chapter III paragraph 3.21Where the most appropriate transfer pricing method in the circumstances of the case, determined following the guidance in paragraphs 2.1- 2.12, is a transactional profit split, financial information on all the parties to the transaction, domestic and foreign, is needed. Given the two-sided...
  1. Australia finalises compliance guideline on intangibles migration arrangements – PCG 2024/117 January 2024 the Australian Taxation Office published the final version of its Practical Compliance Guideline PCG 2024/1 Intangibles migration arrangements. The PCG has previously been released in drafts as PCG 2021/D4 and PCG 2023/D2 Intangibles arrangements. The final version sets out ATO’s...
  2. Additional guidance on the attribution of profits to permanent establishmentsThe OECD has released additional guidance on the attribution of profits to permanent establishments. This additional guidance sets out high-level general principles for the attribution of profits to permanent establishments arising under Article 5(5), in accordance with applicable treaty provisions, and includes examples...

Related Case Law

  1. Italy vs Recordati Industria Chimica e Farmaceutica S.p.A, September 2017, Supreme Court, Case No 20805Recordati Industria Chimica e Farmaceutica S.p.A had been issued an assessment by the tax authorities for FY 2003 on various issues related to transfer pricing. Recordati Industria Chimica e Farmaceutica S.p.A. disagreed with the assessment and brought the case to court. The Regional...
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