Transfer Pricing: European Rules and Practice, Part 2 contains a detailed explanation of the transfer pricing rules and practice in Denmark, Belgium, Italy, Sweden, and Switzerland. This in-depth analysis makes up Chapters 24 through 28 of Bloomberg BNA’s Tax Management Transfer Pricing Portfolio Series.

This Portfolio includes an extensive list of expert authors such as Christian Emmeluth, Esq.; Patrick Cauwenbergh, Professor, University of Antwerp and Deloitte & Touche in
Brussels; Bart Van Honsté, Deloitte & Touche; Carlo Galli and Federico Andreoli of Maisto e Associati in Milan – London; Dr. Lars Samuelson, Tax Lawyer at Setterwalls, Advokatbyrå in Sweden; Richard J. Wuermli and Katharina B. Padrutt, Tax Expert at International AG in Zurich.

Chapter 24, Transfer Pricing Rules and Practice in Denmark provides an overview of the Danish Tax system and administration, and analyzes the basic Danish transfer pricing rules contained in §2 of the Tax Assessment Act, §3B of the Tax Control Act, and §§34 and 35 of the Tax Administration Act. This chapter also describes other provisions of importance when analyzing transfer pricing issues. The methods applied by the Danish Tax Administration for examining intercompany transactions are explained as well as the administrative procedures to be followed in such matters. Issues concerning binding tax rulings, advanced pricing agreements, and mutual assistance are also discussed. Finally, the chapter contains a description of the relevant customs provision and the interaction with the transfer pricing rules for direct tax purposes.

Chapter 25, Transfer Pricing Rules and Practice in Belgium analyzes the main Belgian provision for transfer pricing adjustments (Article 26 of the Belgian Income Tax Code, dealing with the so-called abnormal or benevolent advantages) as well as the provisions to challenge tax avoidance through “tax havens” (Articles 54 and 344 paragraph 2 ITC). This chapter also discusses in detail the guidance provided by the Belgian tax authorities and summarizes the ruling practices and ruling procedure. The first part includes the application of the different transfer pricing provisions to specific intragroup transactions, such as the transfer of (in)tangible assets, waiver of a debt claim, financing agreements, and intragroup services. The second and third parts describe the audit practice from a transfer pricing perspective and give a brief overview of the compatibility of the Belgian domestic transfer pricing provisions with double tax treaties. The final part discusses procedures for preventing the double taxation that can result from transfer pricing adjustments, with special attention to the EU Arbitration Convention as well as to the relevant Belgian materials.

Chapter 26, Transfer Pricing Rules and Practice in Italy provides an overview of the Italian tax system and administration and analyzes the main Italian transfer pricing rule, contained in Article 76(5) of the Income Tax Code, as it has been interpreted and applied over the years, under the growing influence of the OECD Transfer Pricing Guidelines. This chapter also highlights developments on the application of transfer pricing rules to domestic transactions and analyzes specifically the transfer pricing issues applicable to selected transactions, together with the growing administrative practice and case law. Finally, the chapter contains two case studies on the transfer pricing issues arising from the trading of tangible property between Italy and the United States.

Chapter 27, Transfer Pricing Rules and Practice in Sweden provides an overview of the Swedish Tax system, especially the tax provisions applicable to operating a controlled group of companies in terms of consolidation and the payment of group dividends. This chapter analyzes the relevant provisions in Swedish tax law governing transfer pricing adjustments, including the definition of an arm's length price in the controlled group context, the examination process, taxpayer documentation requirements related thereto, and settlement of transfer pricing disputes through arbitration or the Competent Authority process. This chapter also analyzes and examines significant transfer pricing cases, potential defenses and Swedish Treaty provisions relevant to transfer pricing issues.

Chapter 28, Transfer Pricing Rules and Practice in Switzerland analyzes the Swiss federal and cantonal rules and procedures for making transfer pricing adjustments. In many countries there are specific rules for setting or evaluating prices for related-party services, licenses, or sales of goods or intangibles. Switzerland, however, has only rudimentary rules dealing with transfer pricing and Swiss tax administrators often simply lack the capacity to audit complex transfer pricing arrangements. The reason for this is that historically multinational enterprises generally used Switzerland's beneficial tax environment to shelter profits, and thus transfer pricing was seldom used to reduce profits in Switzerland. Nowadays, in today's worldwide transfer pricing environment, Swiss multinational enterprises and multinationals with Swiss-affiliated companies are more often confronted with foreign transfer pricing adjustments which may affect the taxable base of a Swiss company and thus confront the company with the possibility of double taxation. In such a situation, a knowledge of Swiss transfer pricing rules and practice is necessary in order to persuade the Swiss tax authorities that a corresponding adjustment is appropriate, either unilaterally or as part of a mutual agreement procedure.

Transfer Pricing: European Rules and Practice, Part 2 allows you to benefit from:

• Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area
• Invaluable practice documents including tables, charts and lists
• Plain-English guidance from world-class experts
• Real-world and in-depth analysis that lets you explore various options
• Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more.
• Alternative approaches to both common and unique tax scenarios

This Portfolio is part of the Foreign Income Portfolios Library, a comprehensive series containing more than 90 Portfolios, which covers critical transactions and issues in international taxation. This highly-regarded resource service offers commentary on a wide range of foreign income topics including: Foreign Tax Credit, Business Operations in more than 40 foreign countries, Branch ProfitsTax, Source of Income Rules, Subpart F (Controlled Foreign Corporations), Foreign Partnerships and Partners, Transfer Pricing, and more.

Detailed Analysis

Chapter 24: TRANSFER PRICING RULES AND PRACTICE IN DENMARK by Christian Emmeluth, Esq. Copenhagen

24:I. Overview of Danish Tax System and Administration

A. Income Subject to Danish Taxation

1. Income Derived by Danish-based Entities from Transactions Involving Foreign Activities or Payments

2. Income Derived by U.S.-based Entities from Transactions Involving Danish Activities or Payments

3. Joint Taxation

B. Assessment of Income Tax

C. Audit Procedures

D. Administrative Appeals of Disputed Audit Findings

24:II. Basic Danish Transfer Pricing Rules

A. Transactions Subject to Rules

1. Basic Conditions Applying to Both Danish and Foreign Companies

2. Special Reporting Requirements Applying to Both Danish and Foreign Companies

3. Case Law

B. Transfer Pricing Standards

1. Statutes

a. Tax Assessment Act § 2

b. Corporate Tax Act § 12

c. Corporate Tax Act § 11

d. Corporate Tax Act § 11A

e. Corporate Tax Act § 11B and § 11C

f. Tax Assessment Act § § 5G and 5F

2. Administrative Interpretations and Practice - Influence of OECD Standards

a. The Comparable Uncontrolled Price Method

b. The Resale Price Method

c. The Cost Plus Method

d. Profit Split Method

e. The Transactional Net Margin Basis Method

3. Defenses to Transfer Price Adjustments

4. Judicial Decisions

C. Treatment of Secondary Adjustments

24:III. Transfer-Pricing-Related Reporting and Documentation Requirements

A. Denmark's Reporting and Documentation Requirements

B. Coordination with U.S. Documentation Requirements

24:IV. Transfer Pricing Penalties, Tax Amnesty, and Interest on Additional Income Taxes Due

A. Penalties

B. Interest

C. Tax Amnesty

24:V. Dealing with the Tax Authorities on Transfer Pricing Issues

A. Advance Rulings

1. Assessment Board and Appeal to the Tax Court and Ordinary Courts

2. Conditions That Must Be Satisfied for a Ruling

B. Danish Government Participation in U.S. Advance Pricing Agreement Process

C. Transfer Pricing Audits

D. Refund Claims Following U.S.-Initiated Allocations of Income from Danish Entities to U.S. Taxpayers

24:VI. Practical Aspects of the Competent Authority Process

A. Mutual Agreement Article 25 of the OECD Model Convention Treaty

B. EU Arbitration Convention

24:VII. Information Disclosure

A. The Act on Public Administration

B. Secrecy Provisions Applicable to the Tax Administration

24:VIII. Coordination of Transfer Prices with Danish Customs Declarations

Introductory Material

A. The Transaction Value of Identical Goods

B. Transaction Value for Similar Goods

C. The Resale Price

D. The Computed Value Method

E. Reasonable Methods

Chapter 25: TRANSFER PRICING RULES AND PRACTICE IN BELGIUM by Patrick Cauwenbergh and Bart Van Honsté, Deloitte & Touche Brussels

25:I. Introduction

25:II. Basic Belgian Transfer Pricing Rules

A. Overview of the Belgian Tax System

B. General Transfer Pricing Rules

C. The Key Article: Article 26 ITC

1. Scope of Article 26 ITC

a. In General

b. Article 26 Versus 49 ITC

(1) Escape Clause

(2) Burden of Proof

c. Article 26 Versus 55 and 56 ITC

2. Conditions of Application

a. Abnormal or Benevolent Advantages

(1) In General

(2) Before the TP Circular

(a) "Advantage"

(b) "Abnormal" and "Benevolent"

(i) "Abnormal"

(ii) "Benevolent"

(3) After the TP Circular

(a) Transactional Analysis

(b) Functional Analysis

(i) Structure and Activities of Group

(ii) Identification of Intercompany Transactions and Contractual Relationships

(iii) Functions Performed and Risks Assumed

(iv) Ownership and Development of Intangibles

(c) Characterization of Contracting Parties

(d) Analysis of Economic Circumstances

(e) Analysis of Business Strategies

(f) Search for Reliable Comparables

(g) Conclusion

(i) Liége, May 21, 1997: Indirect Set-offs

(ii) Gent, April 29, 1999: Quantity and Quality Discounts

b. Quality of Foreign Beneficiaries

(1) Abnormal or Benevolent Advantages Granted to Foreign Beneficiaries

(2) Abnormal or Benevolent Advantages Granted to Nonresident Interdependents

(a) Nonresident

(b) "Relationship of Mutual Interdependency"

(3) Abnormal or Benevolent Advantages Granted to Nonresidents in a "Tax Haven"

(a) Concepts of "Nonresident" and "Foreign Establishment"

(b) "Tax Haven" Concept

(4) Abnormal or Benevolent Advantages Granted to Other Nonresidents

c. Capacity of the Grantor of the Advantages

3. Burden of Proof

a. Before the TP Circular

b. After the TP Circular

(1) General

(2) Accessibility to Information

(3) Documentation Requirements

4. Use of Transfer Pricing Methods in Practice

a. Transfer Pricing Methods

(1) Attitude of the Belgian Tax Authorities

(2) Attitude of the Belgian Courts

b. Set-Offs

c. Cost Sharing Agreements

5. Method of Income Adjustment

6. Periodical Corrections

D. Articles 54 and 344 Paragraph 2 ITC: Two Provisions to Challenge Tax Avoidance Through "Tax Havens"

1. Expenses of Article 54 ITC

a. Scope of Article 54 ITC

(1) In General

(2) Article 54 Versus Article 26 ITC

(3) Article 54 Versus Article 49 ITC

b. Conditions of Application

(1) Payments to Which Article 54 ITC Applies

(2) Capacity of the Beneficiary of the Payments

(3) Capacity of the Debtor of the Payments

c. Burden of Proof

d. Method of Income Adjustment

2. Article 344, Paragraph 2 ITC: Transfer of Specific Assets to "Tax Havens"

a. Scope of Article 344, Paragraph 2 ITC

(1) In General

(2) Article 344, Paragraph 2 and Article 26, Paragraph 2, 2° ITC Compared

b. Scope of Application

(1) Contracts to Which Article 344, Paragraph 2 ITC Applies

(2) Capacity of the Transferor

(3) Capacity of the Foreign "Beneficiary"

c. Burden of Proof

(1) Legitimate Financial or Economic Needs

(2) Real Counter-Value

d. Method of "Income Adjustment"

E. Ruling Practices

1. In General

2. Types of Rulings

a. Advance Rulings with Respect to the Applicability of Articles 26, 54 And 344, Paragraph 2 ITC

(1) Background

(a) Before July 20, 1991: Informal Ruling Procedure

(b) From July 20, 1991 to May 3, 1999: Formal Ruling Procedure

(c) From May 3, 1999 to December 31, 2002: Royal Decree of May 3, 1999

(d) From January 1, 2003: Generalized Ruling System

(2) Generalized Ruling System

(a) Scope of an Advance Ruling

(b) The Notion of "Advance Ruling"

(c) Explicit Recognition of Bilateral/Multilateral APAs

(3) Application of the Generalized Ruling Regime

(a) Procedure

(b) Reply Timeframe

(c) Outcome

(d) Publication

b. Advance Pricing Agreements

(1) Introduction

(2) Definition

(3) Legal Basis

(a) Legal Basis for Bilateral APAs

(b) Belgian Legal Basis

(4) Time Limit

(a) Domestic Procedure

(b) Mutual Agreement Procedure

(5) Required Documentation and Information

(6) Advantages

(a) Avoidance of Double Taxation

(b) Domestic Legal Certainty

(c) Risk and Cost Reduction

(d) Constructive Relationship with Tax Authorities

(7) Disadvantages

(a) Disclosure of Information

(b) Preparation and Compliance Costs

(c) Limited Application

(8) Feasibility

F. Application of the Articles 26, 49, 54 and 344, Paragraph 2 ITC to Specific Intragroup Transactions

1. Use and Transfer of Fixed Tangible Assets

2. Transfer of Financial Fixed Assets

a. Articles 26, 49, 54 ITC

b. Article 344, Paragraph 2 ITC

3. Transfer of (Commercial) Goods

a. Price Determination of Goods

b. Other "Transfer Pricing" Issues with Respect to the Sale and Purchase of (Commercial) Goods

4. Use and Transfer of Intangible Fixed Assets

a. Transfer or Use of Foreign Intangible Assets

b. Transfer or Use of Belgian Intangible Assets

5. Waiver of a Debt Claim

a. Pure Waiver of a Debt Claim

b. Waiver of a Claim Until "Beneficiary" Better Off

6. Financing Agreements

a. Interest-Free and Low-Interest Loans

b. High-Interest Loans

7. Intragroup Services

a. Acts of Control and Management

b. Actual Services

25:III. Overview of Compliance and Litigation from a Transfer Pricing Perspective

A. Organization of the Belgian Tax Administration with Respect to Transfer Pricing

B. Tax Audit

1. Investigative Powers of the Belgian Tax Authorities in International Situations

a. Limitations: Principles of Sovereignty and Legality

b. Sources of Law

c. International Cooperation Between Tax Authorities

(1) Exchange of Information

(a) Exchange on Request

(b) Automatic Exchange

(c) Spontaneous Exchange

(2) Investigations on Foreign Territories

(3) Simultaneous Tax Examinations

(4) Pooling of Experience Between Tax Authorities

(5) Feedback with Respect to Conflicting Information

2. Belgian Audit Practice with Respect to Transfer Pricing

a. In General

b. Who Can Exercise Control?

c. Investigation Powers

(1) Requests for Information

(2) Cooperation Between Tax Administrations

d. Means of Evidence

(1) Factual Presumptions

(2) Special Means of Evidence

e. Audit Practice

(1) Transfer Pricing Audit

(2) Red Flags

25:IV. Compatibility of Belgian Domestic Transfer Pricing Provisions with Double Tax Treaties

A. General Rule: Priority of Double Tax Treaties over Domestic Rules

B. Article 26 ITC Versus Double Tax Treaty

1. Position of Majority of Belgian Case Law and Legal Authors

2. Under the TP Circular

C. Articles 54 and 344, Paragraph 2 ITC Versus Double Tax Treaty

1. Article 54 ITC

2. Article 344, Paragraph 2 ITC

25:V. Procedures for Preventing Double Taxation Resulting from Transfer Pricing Adjustments

A. Introduction

B. Competent Authority Procedure

1. Introduction

2. Scope of the Competent Authority Procedure

a. Specific Case Mutual Agreement

b. General Mutual Agreement

3. Conditions of Application

a. In General

b. Specific Case Mutual Agreement

(1) Time Limit

(2) Formalities

(3) Competent Authority

4. Course of the Procedure

a. First Phase: Treatment of Request in the Approached Member State

b. Second Phase: Mutual Agreement Between Tax Authorities of Both Contracting States

c. Third Phase: Execution of Agreement

5. Mutual Agreement and Internal Law

6. Mutual Agreement and Economic Double Taxation

C. Arbitration Convention

1. Introduction

2. Arbitration Convention Circular

a. Introduction

b. Scope of the Arbitration Convention

(1) Contracting States (Article 16 of the Arbitration Convention)

(2) Arm's Length Principle (Article 4 of the Arbitration Convention)

(a) Principles

(b) Belgian Legislation

(3) Personal Application (Articles 1 and 4 of the Arbitration Convention)

(a) Associated Enterprises

(b) Permanent Establishments

(4) Taxes Covered (Article 2 of the Arbitration Convention)

(5) Application Period (Article 20 of the Arbitration Convention)

(6) Definitions

c. Procedure

(1) Notification (Article 5 of the Arbitration Convention)

(2) Mutual Agreement Procedure (Article 6 of the Arbitration Convention)

(a) Initiation of the Procedure

(b) Statute of Limitations

(c) Formalities

(d) Competent Authority

(e) Well-Founded Complaint (Article 6(2) of the Arbitration Convention)

(f) Serious Penalty Clause (Article 8 of the Arbitration Convention)

(g) Term To Eliminate Double Taxation (Article 7(1) And (4) of the Arbitration Convention)

(3) Arbitration Procedure (Article 9, 10 and 11 of the Arbitration Convention)

d. Details Specific to Belgium

(1) Interaction with Domestic Legal Remedies

(a) In General

(b) Concrete Application

(i) An Administrative Appeal May Have Been Filed

(ii) A Juridical Appeal May Have Been Filed

(2) Moratorium Interest

Chapter 26: TRANSFER PRICING RULES AND PRACTICE IN ITALY by Carlo Galli Maisto e Associati Milan – London and Frederico Andreoli Maisto e Associati Milan – London

26:I. Introduction

A. Statutes and Forms of Interpretation Under Italian Tax Law

B. Italian Tax Principles

1. Taxpayers Subject to Italian Tax Jurisdiction

2. Income Subject to Italian Tax Jurisdiction

3. Procedural Rules

C. History of Transfer Pricing Rules

26:II. Overview of Italian Transfer Pricing Rules

A. Transfer Pricing in Domestic Transactions

1. General

2. The Concept of "Normal Value": Article 9(3) and 9(4) of the Income Tax Code

3. The "Benefit" Principle (Principio dell'Inerenza)

B. Overview of Transfer Pricing in Cross-Border Transactions

C. Impact of OECD Guidelines on Italian Transfer Pricing Standards

26:III. Statutory Rules on Transfer Pricing (Article 76(5) ITC) and the Interpretation Thereof by the Italian Ministry of Finance (Circular No. 32/9/2267 of 22 September 1980 and Circular No. 42/12/1587 of 12 December 1981)

A. Resident Persons Involved

B. Foreign Persons Involved

C. Forms of Control

1. Control of Capital or Voting Rights

2. Other Forms of Control

D. Transactions Covered and Arm's Length Considerations

1. Tangible Property

a. Comparable Prices

b. Resale Price Method

c. Cost-Plus Method

d. Customs Value

e. Alternative (Profit-Based) Methods

(1) General

(2) Profit-Split Method

(3) Comparable Profit Method

(4) Return on Capital

(5) Other Methods

2. Services

a. Characterization of Intragroup Services

b. Pricing of Intragroup Services

3. Use of Money

a. Relevant Transactions

b. Relevant Market

c. Loan Agreements Between Branch and Head Office

d. Waiver of Credits

e. Interest-Free Loans

(1) Civil Law Rules

(2) Due Diligence Obligation of Directors of Italian Lending Company

(3) Consequences of Adjusting a Zero Rate of Interest

(4) Indirect Taxes

f. Thin-Capitalization Rules

g. Tax Treatment of Nondeductible Interest

h. Withholding Tax

4. Intangible Property

a. General

b. Evaluation Methodology

c. Form of the Consideration

d. Safe Harbors

e. Anti-Avoidance Principles in the 1980 Circular

26:IV. Cost Sharing Agreements

26:V. Documentation

26:VI. Compliance and Litigation

A. Compliance

1. Assessment

2. Reporting

B. Litigation and Penalties

1. Litigation

2. Penalties and Interest

a. Penalties

b. Interest

c. Waiver of Penalties

26:VII. Summary of Case Law

Introductory Material

A. Choice of Method for Sale of Goods

B. Arm's Length Consideration for Use of Intangibles

C. Use of Money

D. Miscellaneous

26:VIII. Dealing with the Italian Tax Authorities on Transfer Pricing Issues

A. Advance Rulings

B. Participation in APA Process

C. Refund Claims Following U.S.-Initiated Adjustments

D. Negotiated Settlements of Italian-Initiated Adjustments

26:IX. Practical Aspects of the Competent Authority Process

26:X. Information Reporting and Recordkeeping

A. The Effect of Italian Secrecy Rules

B. Practical Application of Exchange of Information Agreements

C. Taxpayer Defenses to Information Requests Made by Italian Tax Authorities

26:XI. Elimination of Double Taxation Under the EEC Convention 90/436/EC

26:XII. Hypothetical Case Studies Involving Italian Transfer Pricing Rules and Practice

A. Example of Italian Export to the United States

1. Determining Arm's Length Consideration Where Italian Parent Retains Intangibles and Technology

2. Determining Value: Segregation Versus Incorporation of Royalties in the Sale Price

3. Agency Versus Distributorship

4. Safe Harbors and Internal Documentation of Arm's Length Nature of Transfer Price

B. Example of U.S. Export to Italy

1. Determining Arm's Length Consideration Where U.S. Parent Retains Intangibles and Technology

2. Determining Value: Segregation Versus Incorporation of Royalties in the Sale Price

3. Agency Versus Distributorship

4. Safe Harbors and Internal Documentation of Arm's Length Nature of Transfer Price

Chapter 27: TRANSFER PRICING RULES AND PRACTICE IN SWEDEN by Dr. Lars Samuelson Tax Lawyer, Setterwalls, Advokatbyra, Sweden

27:I. Introduction

27:II. Background

A. Main Features of Swedish Corporate Taxation and Tax Administration

1. General Remarks

2. Computational Rules

B. Income Received by Companies Resident in Sweden

1. Operating Companies

2. Closely Held Companies

C. Swedish Income Derived by Nonresident Companies

D. Group Consolidation

E. Group Dividends

F. Controlled Foreign Companies

G. Assessment of Income Tax

H. Audit Procedures

I. Administrative and Judicial Appeals

27:III. Application of General Principles to Transfer Pricing

A. General Remarks

B. Denied Deduction - Chapter 16 Income Tax Act

C. Exit Taxation - Chapter 22 Income Tax Act

D. Concealed Dividends - Chapter 15 and Chapter 25 Income Tax Act

27:IV. Application of Chapter 14

A. General Remarks

B. The Prerequisites

1. Agreement

2. Economic Community of Interest

3. Deviating Terms of Agreement

4. Reduction of Income Taxable in Sweden

5. Other Reasons for Deviating Pricing

C. Tax Implications Where Chapter 14 Applies

D. Burden of Proof and Level of Proof

E. Administrative Interpretation and Practice

1. Influence of OECD Standards

2. Methods of Establishing the Arm's Length Price for Swedish Tax Purposes

3. Priority of Methods

F. Case Law

1. General Remarks

2. Tangible Property

3. Intangible Property (Royalty)

4. Services

5. Intra-Group Costs

6. Guarantee Commitments

7. Loans and Credits

8. Group Contributions

G. Application of Tax Avoidance Act in the Transfer Pricing Field

27:V. Defenses To Transfer Pricing Adjustments

A. Business Justification

B. Set-Off Arguments

27:VI. Swedish Tax Treaty Provisions Relevant to Transfer Pricing

A. General Remarks

B. Swedish Double Tax Treaty with the United States

27:VII. Conflict of General Principles, Chapter 14 and Treaty Law

A. General Remarks

B. Conflict of General Principles and Chapter 14

C. Conflict of Domestic Rules and Treaty Rules

27:VIII. Corresponding and Secondary Adjustments

A. General Remarks

B. Corresponding and Secondary Adjustments

27:IX. Competent Authority Proceedings (Mutual Agreement)

27:X. Arbitration

A. Arbitration under Swedish Tax Treaties

B. EC Arbitration Convention

27:XI. Transfer Pricing Related Reporting and Documentation Requirements

A. Swedish Reporting and Documentation Requirements

B. Coordination with U.S. Documentation Requirements

27:XII. Penalties, Tax Amnesty and Interest on Additional Income Taxes Due to Transfer Pricing Income Reallocations

27:XIII. Dealing With the Swedish Tax Authorities on Transfer Pricing Matters

A. Advance Rulings

B. Swedish Government Participation in U.S. APA Process

27:XIV. Coordination of Transfer Prices with Swedish Value Added Taxes and Customs

Chapter 28: TRANSFER PRICING RULES AND PRACTICE IN SWITZERLAND by Richard J. Wuermli and Katharina B. Padrutt, TAX EXPERT International AG, Zurich

28:I. Introduction

A. In General

B. Relevance of Transfer Pricing in Switzerland

28:II. Overview of Corporate Income and Capital Tax System in Switzerland

A. Legal Entities Liable for Income and Capital Taxes

B. Income Taxes

C. Capital Taxes

D. Survey of Corporate Tax Rates

1. Federal Income Tax Rate

2. Cantonal and Communal Income Tax Rates

3. Capital Tax Rates

4. Stamp Taxes

5. Value Added Tax

E. Companies with Tax Privileges

1. Holding Company Status

2. Taxation of Administrative Companies

F. Allocation of Income and Capital to Permanent Establishments

1. Intercantonal Double Taxation

2. International Double Taxation

28:III. Legal Basis for Transfer Pricing Adjustments in Switzerland

A. In General

B. Relevance of Commercial and Company Law for Tax Purposes

C. Hidden Profit Distributions (Constructive Dividends, Deemed Dividend Distributions)

D. Associated Companies / Concept of Control

E. The Arm's-Length Principle

1. Laws

a. DBG/StHG

b. Withholding Tax

2. Circular Letters

3. Case Law

4. Methods of Establishing Arm's-Length Prices

28:IV. Specific Transactions between Associated Companies

A. Interest on Loans

B. Thin Capitalization Rules

C. Corporate Valuation

D. Performance of Intragroup Services

E. Principal - Agent Structures (Circular Letter No. 8 of December 18, 2001)

F. Fifty-Fifty Practice

1. Fifty-Fifty Practice for Income Tax Purposes

2. Fifty-Fifty Practice for Value Added Tax - Internal Instructions from the Federal Tax Authorities (April 18, 2002)

a. Handling of Lump Sum Expenses under the VAT Law

b. A Non-VAT liable Company Opts for VAT

G. Fiduciary Contracts

28:V. OECD Model Tax Convention on Income and on Capital - Relevant Articles

A. In General

1. Elimination of Juridical Double Taxation

2. Elimination of Economic Double Taxation

B. Article 9 of the OECD Model Tax Convention on Income and on Capital

C. The Mutual Agreement Procedure

28:VI. The Swiss Treaty Practice

A. Article 9(1) - Primary Adjustment

B. Article 9(2) - Corresponding Adjustment

C. Mutual Agreement Procedure

1. Statutes of Limitations

2. Request for a Mutual Agreement Procedure

3. Requirements and Effects

4. Examination of the Request for a Mutual Agreement Procedure

5. Unilateral Remedy Against Taxation in Violation of the Convention

6. Initiation and Execution of the Mutual Agreement Procedure

7. Legal Position of the Taxpayer

8. Legal Effect of an Agreement Reached in the Mutual Agreement Procedure

9. Execution of the Agreement

28:VII. OECD Transfer Pricing Guidelines

A. Overview of Content

B. The Arm's-Length Principle

1. Comparability Analysis

2. Factors Determining Comparability

3. Recognition of the Actual Transactions Undertaken

4. Use of Transfer Pricing Methods

C. Methods Used to Apply the Arm's-Length Principle

1. Traditional Transaction Methods

2. Transactional Profit Methods

D. The Swiss Approach

28:VIII. Consequences of Transfer Pricing Adjustments in Switzerland

Introductory Material

A. Primary Adjustment at the Level of the Company Resident Outside Switzerland

B. Corresponding Adjustment at the Level of the Company Resident in Switzerland

1. Swiss Resident Company Has Not Been Finally Assessed

2. Swiss Resident Company Has Been Finally Assessed

C. Secondary Adjustments

D. Swiss VAT Issues

28:IX. Compliance and Litigation

A. Taxpayer - Requirements on Providing Information

B. Information to be Provided by Third Parties

1. General Rules

2. Penalties

3. Banking Secrecy

C. Position of the Tax Authorities

1. Main Features of the Tax Authorities

2. Position of the Tax Authorities

3. Advance Pricing Agreements

D. Appeals

Working Papers

Table of Worksheets

Worksheet 1 Form 05.007, Income Tax Return (in Danish)

Worksheet 2 Form 05.022, Controlled Transactions (in English), appendix to income tax return

Worksheet 3 Form 05.021, Controlled Transactions (in Danish)

Worksheet 4 Form 14.007, Customs Declaration (in Danish)

Worksheet 11 Transfer Pricing Circular of June 28, 1999 (Unofficial Translation)

Worksheet 21 Italian Transfer Pricing System - Income Tax Code Excerpts

Worksheet 31 Translation

Worksheet 41 Instructions on Fiduciary Contracts (published in October 1967)

Worksheet 42 Circular Letter No. 14 of June 29, 1959, on the Taxation of Swiss Companies Performing their activities mainly outside Switzerland

Worksheet 43 Circular Letter No. 24 of June 1, 1960, on the taxation of non-Swiss companies performing their activities through a branch in Switzerland

Worksheet 44 Circular Letter No. 6 of June 6, 1997, on the calculation of hidden equity (thin capitalization rules)

Worksheet 45 Circular Letter No. 8 of December 18, 2001, on the international tax allocation of principal agent structures for direct federal tax purposes

Worksheet 46 Instructions of the FTA of January 26, 2006, on the determination of safe haven rules for interest payments to and from shareholder(s) from and to subsidiaries

Worksheet 47 Instructions of the FTA of February 14, 2006, on the determination of safe haven rules for interest payments in foreign currencies to and from shareholder(s) from and to subsidiaries

Worksheet 48 Circular Letter No. 4 of March 19, 2004, on the taxation of service companies

Worksheet 49 Circular Letter No. 9 of June 22, 2005, on the commercially justifiable business expenses of Swiss companies mainly performing business activities outside Switzerland for direct federal tax as well as for withholding tax purposes

Bibliography

Chapter 24

Conventions

EU Regulations

Statutes

Cases

Chapter 25

Books

Contributions in Journals

Chapter 26

Books

Articles

Chapter 27

Statutes

Cases

Supreme Administrative Court

Administrative Courts of Appeal

Publications and Treatises

Chapter 28

Statutes

Publications and Treatises