International transfer pricing in Switzerland

The topic of transfer pricing has increasingly become the focus of the tax authorities in recent years due to the associated potential for international tax optimization. The term "international transfer pricing" refers to the prices used for intra-group transactions (such as the sale of goods or the licensing of intellectual property rights) between individual tax units of a company or group based in different countries. The key difference to "genuine" third-party prices is therefore that transfer prices are not determined by the market, but by legally independent but de facto interlinked business units and are only used for internal company or tax accounting purposes. Switzerland itself has no transfer pricing regulations, as is the case in many OECED states. On January 23, 2024, the Swiss Tax Conference ("SSK"), in cooperation with the Federal Tax Administration, published a detailed article on the topic of transfer pricing for the Tax Information Dossier for the first time.

Transfer pricing as an instrument for tax optimization

Due to the sometimes considerable differences in profit tax rates between countries, transfer pricing is a suitable instrument for international corporate Tax Planning. For example, by setting a low price for intra-group sales from a high-tax state, the group reduces its profit and thus its tax burden in this state in favor of acquiring group companies which are, for example, in low-tax states.

In response to increasingly aggressive transfer pricing by multinational groups, the international community within the OECD has continuously developed the arm's length principle and the methods and principles applicable in this context in recent years. The methods for implementing the arm's length principle show the rules according to which a transfer price can be determined. Accordingly, the conditions applied to transactions between companies in a multinational group may not deviate from those that would be agreed between independent companies. Violation of this principle can lead to negative tax consequences in international relations. In international tax law, the arm's length principle finds its normative basis in particular in the double taxation agreements (DTAs) concluded between the various countries and Switzerland. Whether and when this principle is actually fulfilled is regularly the subject of discussions between the companies concerned and the tax authorities involved.

Switzerland does not have its own specific legislation for determining transfer prices, but is guided in practice by the OECD Transfer Pricing Guidelines, which represent a consensus of the international community with regard to the determination of arm's length transfer prices.

Standard methods for determining arm's length transfer prices

There are various standard methods that can be used to determine transfer prices and in which the price of a transaction between affiliated companies serves as the central basis:

  • Price comparison method: In this approach, the price charged in an intra-group transaction for the delivery of an asset or the provision of a service is compared with the price charged for such a delivery or service in a comparable transaction between other companies under similar conditions. This method can be used if no difference between the compared transactions can significantly change the price or if comparability adjustments can be made to counteract any consequences of these differences.
  • Resale price method: The resale price method is based on the price at which a product purchased by the taxable person from an affiliated company is resold to an independent company. A gross profit margin must be deducted from this resale price, whereby the gross profit represents the amount from which the reseller must cover its distribution expenses and generate a reasonable profit. This approach can be used if distribution companies specifically purchase products from an affiliated company in order to subsequently resell them to others.
  • Cost-plus method: If the costs incurred by the taxable person as part of the intra-group transaction are used as a basis and an appropriate mark-up is calculated on this basis, taking into account the functions performed and market conditions, this is an application of the cost-plus method. This is used for production companies with certain functional profiles (particularly in the area of semi-finished products) or for service companies if assets are supplied to an affiliated company or services are provided.

Tax consequences of violating the arm's length principle in Switzerland

In the event of non-compliance with the arm's length principle and the application of inappropriate transfer prices, the Swiss tax authorities (only those at cantonal level) make a primary adjustment, i.e. a correction to the intra-group price applied. In this context, tax law provides for two significant adjustments to the tax consequences:

  • Profit tax: If a domestic company does not observe the aforementioned principle and distributes excessive remuneration to its shareholders (e.g. the parent company) or other related parties (e.g. a sister company) abroad (or does not receive sufficient compensation from them), the inappropriate component of the remuneration qualifies as a hidden profit distribution. This must therefore be included in the taxable profit of the Swiss company. Similarly, excessive compensation paid by a Swiss parent company to a foreign subsidiary results in it being considered a hidden capital contribution and, for the Swiss parent company, is equivalent to an unjustified write-down for accounting purposes, which in turn is included in the taxable profit.
  • WHTExcessive remuneration paid to shareholders or other related parties abroad may be regarded as a pecuniary benefit and is therefore subject to WHT.

Thus, in principle, a primary correction initiated by the Swiss authorities leads to qualification as:

  • monetary payment by the Swiss company to the foreign company for the purposes of WHT and CIT if the foreign company is the parent company or a sister company of the Swiss company; or
  • Hidden capital contribution in favor of the foreign company (i.e. offsetting of both Swiss companies for the purposes of CIT) if this is a subsidiary of the Swiss company.

A primary adjustment in Switzerland can lead to international double taxation, as the offset profit in Switzerland has already been taxed abroad, for example. International double taxation can then only be eliminated by means of a mutual agreement procedure.

The following simplified case study is intended to illustrate the specific tax consequences from a Swiss perspective in the event of a primary adjustment in the relationship between sister companies:

Case study


A Ltd. is the Swiss group company of a Danish group with group parent company Zeta A/S. A Ltd. manufactures pharmaceutical products in Switzerland. A Ltd. sells its products in Switzerland directly to independent third parties. Abroad, the products are distributed exclusively through affiliated group companies. B Ltd., a sister company of A Ltd., domiciled in Liechtenstein, is responsible for the European market.

A Ltd. sells its products to Swiss pharmacies at CHF 200/per unit. The transfer price from Ltd. to the affiliated B Ltd. is CHF 100/per unit.

In the course of a tax audit in spring 2023 concerning the year 2021, the Federal Tax Administration corrects the delivery price from A Ltd. to B Ltd. to 180 CHF/per piece. The deliveries to B Ltd. in 2021 amount to 100,000 pieces. The result of the audit is forwarded by the FTA to the competent cantonal tax administration.

Illustrative example of international transfer pricing in Switzerland from Bucher Tax.


What are the residual withholding tax consequences for 2021 and what are the profit tax consequences presently?


The underpriced sale assessed by the Federal Tax Administration constituted a benefit in kind from A Ltd. to B Ltd. The pecuniary benefit of CHF 8 million (CHF 100,000 x 80) is subject to WHT of 35%. Since B Ltd. is not a shareholder of A Ltd., a base rate of 15% according to the double taxation agreement between Switzerland and Liechtenstein applies due to the application of the so-called direct beneficiary theory. Since the tax of A Ltd. was not passed on to B Ltd., there is also a set-off into the hundred (CHF 8 million / 65 x 15).

This results in a WHT of around CHF 2.3 million (excl. interest on arrears). The monetary benefit in the difference between the sales price and the market price (= CHF 8 million) is also subject to the CIT.


Transfer prices between affiliated companies are playing an increasingly important role in Tax Planning/-audits and it is recommended that these transfer prices are always documented and justified. The determination of transfer prices is not arbitrary, but must always be based on the arm's length principle as defined by the OECD. Violations of this principle can also lead to significant negative tax consequences in Switzerland. In this respect, it is also important for Swiss companies to proactively manage the transfer pricing policy within the group and also to discuss it in advance with the tax authorities.