The Portuguese tax authority requested the Swiss tax authority in a letter dated May 28, 2020 based on Article 25 of the DTT CH-PT to provide information regarding “A Furnishing SA” (hereinafter the Portuguese company) for the tax periods from September 1, 2015 to August 31, 2018. X Furnishing AG (hereinafter the Swiss company) was the holder of the information.
The Portuguese tax authority states that it is carrying out a tax audit of the Portuguese company for the tax years 2015-2017, or the period between September 1, 2015 and August 31, 2018. The Portuguese company mainly produces wood-based furnishings in accordance with supply contracts with the Swiss company, which takes over all products. The Portuguese and Swiss companies are affiliated companies and are currently part of the C. group, from which they were taken over by the D. group on August 31, 2016. The Swiss company is the global buyer of Furnishing products. In the transfer pricing documentation submitted by the Portuguese company, the transactions with the Swiss company were determined by applying the transactional net margin method (TNMM) as it was stated there that other methods were either not applicable or could not be used with sufficient reliability. The documentation also states that the Swiss company is responsible for the storage and distribution of products and that this company also provides related, highly qualified services, such as monitoring quality control. However, the documentation does not explain how the price for these services were determined , nor does it show how some of the functions supposedly developed by the Swiss company for products manufactured by the Portuguese company were carried out.
During the ongoing tax audit, the Portuguese tax authority wants to identify the overall picture of these transactions, namely the functions carried out by the Portuguese company, the Swiss company and other entities, the means used and the risks assumed by these companies.
A request for administrative assistance was therefore considered necessary in order to understand the pricing mechanisms used and to determine whether the transactions comply with the arm’s length principle.
After examining the request, the Swiss tax authority came to the conclusion that it should be acted upon, whereupon it requested the Swiss company to provide it with further information and to inform the Portuguese company about the ongoing administrative assistance procedure
X Furnishing AG objected and called the request of the Portuguese tax authority a “fishing expedition” and the case ended up in the Federal Administrative Court.
Decision of the Court
The appeal of X Furnishing AG was largely dismissed by the Federal Administrative Court.
However in regards of the request for transfer pricing documentation from the Swiss company the court states that none is available and, under Swiss law, does not have to be produced.
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