Switzerland vs Corp, Oct. 2014, Federal Supreme Court, Case No. 4A_138-2014

Category: Financial Transactions | Tag: , ,
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Decision on the criteria for the arm’s length test of interest rates on inter-company loans. This case i about intercompany loans created by zero balancing cash pooling and the funding of group companies by a group finance company.

The Swiss Federal Supreme Court states – If the terms of inter-company loans are not conforming to market conditions, then the payment qualifies as a distribution and a special reserve must be made in the balance sheet of the lender.

The Court also states – It is questionable from the outset whether a participation in the cash pool, by which the participant disposes of its liquidity, can pass the market conditions test at all.

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Swiss case law 4A_138-2014





Related Guidelines

  1. TPG2022 Chapter X paragraph 10.135Under the cash management services agreement the bank makes any transfers necessary to meet the target balance for each pool participant with any net surplus deposited by M or any net overdrawn position being met by the bank lending to M. The facility...
  2. TPG2022 Chapter X paragraph 10.50The following sections outline the transfer pricing considerations which arise from some relevant treasury activities that are often performed within MNE groups, i.e. the provision of intra-group loans, cash pooling, and hedging activities....
  3. TPG2022 Chapter X paragraph 10.141Accordingly, T should be compensated for the functions it performs and the risks it assumes in accordance with the guidance in Section C.1. This may include earning part or all of the spread between the borrowing and lending positions which it adopts....
  4. TPG2022 Chapter X paragraph 10.139As part of the group liquidity arrangements, T operates an MNE group cash pooling arrangement and is responsible for deciding how to invest surplus funds or fund any shortfall. T sets the intra-group interest rates and is at risk for any differences between...
  5. TPG2022 Chapter X paragraph 10.123One of the practical difficulties in such situations will be deciding how long a balance should be treated as part of the cash pool before it could potentially be treated as something else, for example a term loan. As cash pooling is intended...
  6. TPG2022 Chapter X paragraph 10.136As a result of the arrangements in place, M pays less interest to the bank or receives more interest than would have been the case absent the pooling arrangements....
  7. TPG2022 Chapter X paragraph 10.124A potential difficulty for tax administrations in analysing cash pooling arrangements is that the various entities in a cash pool may be resident across a number of jurisdictions, potentially making it difficult to access sufficient information to verify the position as set out...
  8. TPG2022 Chapter X paragraph 10.110In the context of this section, cash pooling is the pooling of cash balances as part of a short- term liquidity management arrangement. Cash pool arrangements are complex contracts which may involve controlled and uncontrolled transactions. For instance, one common structure is that...
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Related Case Law

  1. Switzerland vs Swisscargo AG, Oct 2014, Federal Supreme Court, Case No 4A_138/2014Zero balancing/physical cash pooling involves a physical transfer of money from the accounts of individual group companies to the accounts of the group’s cash pooling company and risks can be considerable. Group companies participating ind the cash pool may loose there funds. Loans...
  2. Switzerland vs “A.”, March 2019, Court of Justice, Case No ATA/222/2019CCompany A was active in the management and administration of trusts and companies; related advice and services. A held 99% of the shares in E, a Seychelles-based company. This subsidiary acted as a sub-contractor for company registrations and corporate affairs in the Seychelles....
  3. Switzerland vs “A AG”, September 2023, Federal Administrative Court, Case No A-4976/2022A 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...
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