Switzerland vs. Corp, Jan. 2015, Case No. 2C_1082-2013, 2C_1083-2013

« | »

In this case, the Swiss Court elaborates on application of the arm’s length principel, transfer pricing methods, OECD TPG, and the burden of proof in Switzerland.

Excerp in English (unofficial translation)

5.1. The question of whether there is a disproportion between the service provided by the company and the compensation it provides is determined by comparison with what has been agreed between independent persons (“Drittvergleich”): the question is whether the benefit would have been granted, to the same extent, to a third party outside the company, or to check whether the “arm’s length” was respected. This method makes it possible to identify the market value of the property transferred or the service rendered, with which the counter-benefit actually required must be compared.

5.2. Where there is a free market, the prices charged therein are decisive and allow an effective comparison with those applied in the transaction examined.

If there is no free market, but transactions with the same characteristics have been concluded with a third party or between third parties, the price at issue must be compared with that which has been carried out in those transactions. This method corresponds to the comparable free market price method as set out in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (July 2010 edition, see especially § 2.13). ss, hereinafter: Principles). In order for this method to be applicable, the transaction with a third party or between third parties must be similar to the transaction examined (Locher, op.cit., 103 ad art 58 DBG), that is to say having been concluded in circumstances comparable to this one. The concept of ” comparable transaction ” is not easy to define. The relevance of the comparison with transactions concluded with third parties assumes that the relevant economic circumstances of these transactions are similar to those of the transaction examined. The comparability of the transactions is determined by their nature and the totality of the circumstances of the case. If the relevant economic conditions differ from those of the transaction under review, adjustments must be made to erase the effects of these differences. However, it can not be ruled out that a comparable transaction was not concluded at market price. The formation of the price can indeed be influenced by several elements, such as market conditions, contractual conditions (for example, the existence of secondary benefits, the quantity of goods sold, terms of payment), the commercial strategy pursued by this third party purchaser or the economic functions of the parties. Nevertheless, the price charged in a comparable transaction is presumed to correspond to the market price; in case of dispute, proof to the contrary lies with the company.

In the absence of a comparable transaction, the examination of the arm’s length principle is then based on a hypothetical value determined by other methods, such as the cost-plus method or, in the context of transactions such as the distribution of goods, the resale price.”

Click here for translation

Swiss case law 2C_1082-2013, 2C_1083-2013





Related Guidelines


Related Case Law