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. See also the previous decision A-742/2022. Click here for English translation Click here for other translation ...

Based on Article 28 of the DTT CH-FR the French tax authority requested the Swiss tax authorities to answer several questions regarding A. SAS and B. GmbH. and to submit various documents to verify the “economic reality” or “real” existence and substance of G. Switzerland and to the modalities of their taxation in Switzerland and the “bond subscription agreement” between G. Switzerland and G. Belgium). After examining the request, the Swiss tax authority came to the conclusion that it should be acted upon, whereupon it requested the company to provide it with the information. The Swiss company objected to parts of the request and called it a “fishing expedition” and the case ended up in the Federal Administrative Court. Decision of the Court The appeal of the Swiss company was partly upheld by the Federal Administrative Court. Click here for English translation Click here for other translation ...

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. Click here for English translation Click here for other translation ...

The Confidentiality and Information Security Management Toolkit (2020) produced by the Global Forum on Transparency and Exchange of Information for Tax Purposes provides guidance to jurisdictions to ensure that their legal framework on the confidentiality of taxpayer information is adequate and protects the confidentiality and appropriate use of information exchanged under an international exchange agreement ...

It may often be the case that the documents and other information required for a transfer pricing audit will be in the possession of members of the MNE group other than the local affiliate under examination. Often the necessary documents will be located outside the country whose tax administration is conducting the audit. It is therefore important that the tax administration is able to obtain directly or through information sharing, such as exchange of information mechanisms, information that extends beyond the country’s borders ...

In the course of an Austrian tax audit related party transactions between C GmbH, Austria, and D AG (formerly A AG), Liechtenstein, could only be traced on the basis of balance sheets and tax returns of A AG, Liechtenstein. In January 2019, the Austrian Federal Ministry of Finance (BMF), Vienna, therefore submitted a request for information to the Liechtenstein Tax Administration based on Article 25a of the DTA between Liechtenstein and Austria, concluded on 5 November 1969 and in particular as amended by the Protocol concluded on 29 January 2013, LGBl. 2013 No. 433. The ***-group is active in the field of online and direct marketing. The head office of the *** Group is in Vaduz. All intangible assets are owned by D AG in Liechtenstein and include all data (more than 100 million), IP and trademark rights, the servers, essential software, domains and know-how. Sales and marketing are carried out exclusively by C GmbH, which is based in Austria. Marketing includes the brokerage of addresses and services as well as the sending of e-mail and postal addresses to customers. The billing of services from Liechtenstein to Austria mainly involves the transfer of data with advertising consent, as well as the leasing of data with advertising consent and server services. The basis for the charging is a cooperation and marketing contract between D AG and C GmbH and there is indeed a description of the content of the contract. However, it is not clear which of these services were actually provided in the individual years. There is also no description of services that could have been used to determine the market value of the services. In order to be able to apply the arm’s length principle between the two affiliated companies, it is necessary to obtain the relevant balance sheets and tax assessment notices of D AG (formerly A AG). By letter of 24 January 2019, the tax administration informed D AG about the BMF’s request for administrative assistance and that the BMF requested the transmission of the 2014 to 2016 balance sheets and tax returns. D AG submitted several comments where it opposed the transmission of balance sheets and tax returns to the BMF. By order dated 1 July 2020, the Tax Administration decided to provide administrative assistance to the BMF Vienna based on the request of 14 January 2019 regarding 1) C GmbH and 2) A AG. A AG then filed an appeal to the Administrative Court where the main argument of the complainant was that the information requested by the requesting authority, namely the 2014, 2015 and 2016 annual accounts of the complainant and the tax accounts for the tax years 2014, 2015 and 2016, were not needed by the Austrian tax authorities. They were neither necessary, suitable and relevant for the taxation of C GmbH, Dornbirn, nor for the taxation of Mr B, Vaduz (point 1 of the complaint).” The appeal was dismissed by the Administrative Court and an appeal was then filed with the Constitutional Court. Judgement of the Constitutional Court The Court dismissed the complaint of A AG. Excerpts “Furthermore, the question of whether only past data or also developments after the valuation date are to be taken into account for the company valuation can be left open. In any case, the complainant also concedes that later data “could at best be used to check the plausibility of the business plan”. However, this is sufficient as a basis to affirm the probable relevance of the requested data as a prerequisite for the granting of tax office assistance. It is therefore not necessary to go into further detail on this appeal.” “In accordance with this case law, it is not necessary to address the question of the substantive correctness of the considerations in the decision of the Administrative Tribunal challenged here. 4.3 However, it is necessary to address the complainant’s complaint that there is also a mere sham reasoning, insofar as the Administrative Court disregards the essential question of whether the tax assessments were issued as provisional assessments and only refers to the general possibility that an assessment can be made provisionally pursuant to § 200 BAO. This reproach appears justified to the Constitutional Court. However, this is only an additional justification. Primarily, the Administrative Court considers that the requesting authority explicitly states that the tax assessment was carried out “provisionally” with regard to both the transfer prices and the exit taxation and that a final legal assessment was only possible after receipt of the requested documents and information. However, this justification is undoubtedly not a sham, especially since it is also at least free of arbitrariness according to the previous considerations. However, a mere secondary justification in addition to a justification in conformity with the constitution cannot constitute a violation of fundamental rights even if it would be unconstitutional on its own (see CJEU 2018/099, recital 3.1; CJEU 2016/087, recital 4.5 [both www.gerichtsentscheide.li]; CJEU 2005/045, LES 2007, 338 [340, recital 2.6]; see also Tobias Michael Wille, Begründungspflicht, op. cit., 564, para. 24). Accordingly, there is no need to go into further detail on this ground of appeal. 4.4 The appellant’s objection to the statement of reasons therefore also proves to be unjustified. 5 For all these reasons, the complainant has not been successful with any of her fundamental rights objections, so that the present individual complaint must be dismissed in accordance with the order.” Click here for English translation Click here for other translation ...

In August 2020, the competent authority of the Belgian tax administration sent a request for information to the Luxembourg tax administration concerning “Lux Service SA” under the tax convention between Luxembourg and Belgium. The requested information regarding “Lux Service SA” was documentation related to the basis for service payments from a related party in Belgium. The tax administration in Luxembourg contacted “Lux Service SA” and requested submission of the information and documents. Lux Service SA did not want to accommodate the request and brought the case to the High Administrative court for an annulment. The tax authorities argued that the appeal should be dismissed as unfounded. The Court dismissed the appeal of “Lux Services SA” and upheld the information injunction issued by the tax administration. The argument that the tax administration had failed to state the reasons for the information injunction was rejected by the Court as unfounded. According to the Court, the information injunction was based on a sufficiently reasoned request from the Belgian tax administration. Click here for English translation Click here for other translation ...

Tax authorities in the EU have agreed to cooperate more closely and exchange information so as to be able to apply their taxes correctly and combat tax fraud and tax evasion. Exchange of Information within the EU is based on Council Directive 2011/16/EU. The Directive and the later amendments in DAC 2 – 6 provides for exchange of information in three forms: spontaneous, automatic and on request. Spontaneous exchange of information takes place if a country discovers information on possible tax evasion relevant to another country, which is either the country of the income source or the country of residence. Exchange of information on request is used when additional information for tax purposes is needed from another country. Automatic exchange of information (AEOI) is activated in a cross-border situation, where a taxpayer is active in another country than the country of residence. In such cases tax administrations provide automatically tax information to the residence country of the taxpayer, in electronic form on a periodic basis. The Directive provides for mandatory exchange of five categories of income and assets: employment income, pension income, directors fees, income and ownership of immovable property and life insurance products. The scope has later been extended to financial account information, cross-border tax rulings and advance pricing arrangements, country by country reporting and tax planning schemes. These amendments which extend the application of the original Directive are loosely based on the common global standards agreed by tax administrations at international level, notably at the OECD. However, they sometimes go further and importantly they are legislative rather than being based on political agreement without legislative force. The table below shows the main content of the  Directives (DAC 1-6) and when exchanges started or will start to take place. An unofficial consolidated version of the original Directive and the five amendments (DAC 1-6) ...

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, ...

The purpose of the Manual is to provide tax officials dealing with exchange of information for tax purposes with an overview of the operation of exchange of information provisions and some technical and practical guidance to improve the efficiency of such exchanges. The manual can be used for training and to design or update domestic manuals. The modular approach allows countries to choose only the parts that are relevant to their specific exchange programs ...