International transfer pricing in Switzerland

The issue of transfer pricing has increasingly become the focus of tax authorities in recent years due to the potential for international tax optimization it offers. 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 of companies located in different countries. The central difference to "real" third-party prices is thus that transfer prices are not determined by the market, but are applied by legally independent but de facto interconnected business units only for internal company or tax accounting purposes.

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 corporations, the international community within the OECD has steadily developed the so-called 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 indicate the rules according to which a transfer price can be determined that corresponds to a price between independent third parties. Violation of this principle can lead to negative tax consequences in international relations. 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 legislation on the determination of transfer prices, but in practice follows the transfer pricing guidelines of the OECD, which represent a consensus of the international community with regard to the determination of transfer prices that conform to arm's length principles.

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

If the Swiss tax authorities do not agree with an applied intercompany price and correct it, this leads to a so-called primary adjustment in Switzerland. A primary adjustment initiated by the Swiss authorities generally leads to qualification as:

  • payment in kind by the Swiss company to the foreign company for the purposes of WHT and CIT if the latter is the parent company or a sister company of the Swiss company; or
  • hidden capital contribution in favor of the foreign company (i.e. set-off of both Swiss companies for the purposes of CIT) if the latter is a subsidiary of the Swiss company.

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

The following simplified case study is intended to show how the tax consequences from a Swiss point of view can have a concrete effect in the case of a primary adjustment in the relationship between a sister company:

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.


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.

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Mateja Bekavac
Livio Bucher
International Taxation
Tax Planning