In 2013, the French tax authorities (DGFP) submitted several requests for administrative assistance to the Swiss Federal Tax Administration (FTA) based on Art. 28 of the Agreement of 9 September 1966 between Switzerland and France.
In the applications, the legal entities concerned in France are B. GmbH and C. GmbH. The legal entities concerned in Switzerland are A. GmbH, B. GmbH, C. GmbH and D. GmbH.
The French tax authorities requested the administrative assistance to monitor the financial situation of the French companies in the X. Group. In 2009, the group’s activities were reorganised, particularly in France. The change in the transfer pricing policy of the X. Group led to a change in the allocation of profits within the group. The provisions of French tax law stipulate that transactions between companies in the same group must be carried out under the same conditions as if they had been carried out between independent companies. In the case of cross-border transactions between companies in the same group, it is also necessary to have information about these companies and the distribution of profits. This information was essential for the French tax authorities to determine the amount of profits derived from activities in France and to determine the taxes due in France.
The Swiss tax authorities requested A. GmbH, B. GmbH, C. GmbH and D. GmbH to submit the information and documents it had specified and subsequently informed the companies that it intended to provide the DGFP with administrative assistance and informed them of the wording of the intended responses and the enclosures.
A complaint was filed by the companies with the The Federal Administrative Court which set aside the request of the tax authorities and decided that the tax returns and income statements should not to be submitted to the French tax authorities.
The tax authorities then lodged an appeal with the Federal Supreme Court.
Decision of the Court
The Federal Supreme Court essentially decided in favour of the tax authorities and (essentially) dismissed the cross appeals of the companies.
Excerpt in English
“…the companies argue that the information requested is not likely to be relevant because it could not provide the French tax authorities with any information to clarify the tax affairs of the companies concerned in France. This is not a tax purpose, but rather the collection of general information about the companies themselves. Insofar as the amount of profits resulting from an activity in France is to be determined, the question arises as to whether the French tax authorities are not even using the request as an opportunity to find out, in the sense of a “fishing expedition”, whether the companies concerned have any links to taxation in France or whether the information could be useful in any other way. The French tax authorities had been provided with detailed transfer price documentation, from which it could be deduced that the transfer prices stood up to a third-party comparison. In order to determine the prices, however, the tax authorities do not require a balance sheet or other business information from the recipient, but rather information on the financial and cost structure of the company or branch providing the service as an independent economic unit and independent taxable entity. This would be available in the form of the taxpayer’s financial figures and the transfer price documentation. The total profit or the respective annual result of the companies, which is a result of their entire (in some cases worldwide) business, cannot be relevant for determining transfer prices in line with third-party prices for individual companies, even less so where no transactions have taken place. The same applies to the balance sheet and the separation of permanent establishment profits. A transfer of the information in question would therefore violate the principles of administrative assistance in tax matters as well as the principle of the protection of privacy under Art. 13 BV and Art. 8 ECHR and the principle of proportionality under Art. 5 para. 2 BV.
2.4 It must therefore be examined whether – as the FTA claims – all of the information requested by the French tax authorities proves to be relevant for tax purposes or – as the companies argue – is not likely to be significant within the meaning of the DTA CH-FR. The only disputed issues are the answers to questions d) et seq. of the administrative assistance requests (see facts under A.d).
(…)
4.6 In summary, the judgements of the lower court cannot be upheld for the most part. The balance sheets, the information on the annual results, the information on the existing permanent establishments and their international profit and loss distribution (company 3), the permanent establishment profit distributions (companies 2 and 3) as well as the income statements of the companies must be submitted to the DGFP. At the same time, the tax information must also be submitted, as the probable materiality with regard to the transfer pricing review is also to be affirmed in this respect. Since there is a connection between the information to be transmitted and the tax purpose and there is also a public interest in its transmission, the principle of proportionality is also satisfied in this case.
Only the question of the DGFP just discussed (E. 4.5) as to whether Company 2 has taken on staff from the French branch cannot be answered. It should be noted that, as the FTA points out, the transmission of the tax returns (concerning companies 3 and 4) – contrary to the dispositive of the judgement of the lower court – was not planned at any time and would not be carried out.
5 As explained above (E. 3.2), the question of whether the request for administrative assistance affects the taxpayer depends to a large extent on the concept of probable materiality.
5.1 As far as companies 1 and 4 are concerned, they do not dispute that the transmission of certain information, such as a list of persons who have received monetary benefits, details of account transactions, business case-related documents or information packages on the entire business relationship between two specific companies, may be justified on a case-by-case basis. In the present case, however, the requested information would not result from business transactions with the service provider, but should be seen in the context of the companies’ business activities throughout Europe. Information about a third party could only be requested if this information was actually likely to be significant for the correct taxation of another person. In addition, none of the grounds set out in Art. 123 et seq. DBG (SR 642.11), as the companies are neither taxpayers nor is the information to be transmitted such that conclusions can be drawn about the business relationships with their individual business partners or any existing reciprocal claims and benefits (Art. 127 para. 1 lit. e DBG).
According to Art. 28 para. 1 DTA CH-FR, information is exchanged for the implementation of this agreement or for the application or enforcement of domestic law regarding taxes of any kind and description (see E. 3.1). The concept of information is (also) to be understood extensively (see OECD Commentary, points 2 and 5 on Art. 26; ANDREA OPEL, Neuausrichtung der schweizerischen Abkommenspolitik in Steuersachen: Administrative assistance according to the OECD standard, 2015, p. 350), as the aim is to ensure the most comprehensive exchange of information possible (see already E. 3.3.1). The wording of the provision clearly does not restrict the information to be exchanged to taxpayers. Moreover, as seen (E. 4), the information requested is likely to be significant, which is why the companies are automatically (also materially) affected persons within the meaning of Art. 3 lit. a StAhiG.
5.2 The requests for administrative assistance relating to companies 2 and 3 concern the taxation of their French branches. Accordingly, as the lower court has already established, the two companies have sufficient links to France. It can also be assumed that certain information concerning them may be relevant for the taxation of their branches. Their submissions, which are essentially the same as those of companies 1 and 4, cannot change this. The lower court therefore rightly assumed that they are also affected by the application within the meaning of Art. 3 let. a StAhiG
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