Transfer Pricing Documentation in Switzerland:

Unlike many European countries, Switzerland does not impose a general obligation to prepare a Master File or a Local File in accordance with Action 13 of the OECD's BEPS Project. This particularity sometimes leads to the misconception that no transfer pricing documentation is required.

Such a conclusion would, however, be incorrect.

Any Swiss company engaged in intra-group transactions must be able to demonstrate that those transactions comply with the arm's length principle, a standard recognized by the Swiss tax authorities and broadly interpreted in line with the OECD Transfer Pricing Guidelines.

An Evidentiary Requirement Rather Than a Formal Documentation Obligation

The Swiss approach is unique in that transfer pricing documentation is generally not mandated by law itself. Nevertheless, documentation often represents the only practical means of demonstrating that an intra-group transaction has been undertaken on arm's length terms.

In the event of a tax audit, the Swiss tax authorities may seek to understand:

• why the transaction was implemented;
• how the pricing was determined;
• which functions, assets and risks are involved;
• what economic benefit is derived from the arrangement.

A company that is unable to provide appropriate supporting documentation may face transfer pricing adjustments, the denial of tax deductions, or even the recharacterization of benefits as hidden profit distributions.

Transfer pricing documentation should therefore be viewed as a key tax risk management tool rather than a mere compliance exercise.

Documentation Should Reflect the Complexity of the Transactions

Not all intra-group transactions carry the same level of risk, nor do they require the same degree of documentation.

In practice, documentation requirements are driven primarily by the value of the transactions, the number of jurisdictions involved, the presence of intangible assets, and the complexity of the operating model. As transaction volumes and complexity increase, so do the expectations of tax authorities.

TP Report, Local File and Master File: What Are the Differences?

Several levels of transfer pricing documentation may be appropriate depending on the circumstances.

The TP Report

Where intra-group transactions become more material or numerous, a simple benchmarking study is often no longer sufficient.

In such situations, a Transfer Pricing Report (TP Report) is generally the most common form of documentation encountered in Switzerland. It typically includes a detailed description of the transactions, a functional analysis, the selection and application of the transfer pricing method, and the economic analyses supporting the arm's length nature of the pricing.

For many Swiss companies, a well-prepared TP Report constitutes the primary line of defence in the event of a tax audit.

The Local File and Master File

Multinational groups frequently adopt the documentation standards established under Action 13 of the OECD's BEPS Project.

The Local File provides detailed information regarding the transactions of a specific entity, whereas the Master File offers a broader overview of the group's organizational structure, value chain, intangible assets, financing arrangements and transfer pricing policies.

The preparation of a Local File or a Master File is generally not mandatory in Switzerland. However, such documentation often becomes relevant where:

• the group operates across multiple jurisdictions;
• material intra-group transactions are performed;
• intangible assets or intercompany financing arrangements are involved;
• a group entity is subject to foreign documentation requirements;
• the group seeks to align its transfer pricing documentation with OECD standards.

In practice, many multinational enterprises prepare a Master File and one or more Local Files not because Swiss law requires them to do so, but because such documentation is mandatory in other jurisdictions or has become the expected market standard in the context of cross-border tax audits.

Conversely, for smaller groups with a limited number of intra-group transactions, a properly prepared TP Report will often be sufficient to meet the expectations of the Swiss tax authorities.

What About Country-by-Country Reporting?

Country-by-Country Reporting (CbCR) is a separate obligation from transfer pricing documentation.

In Switzerland, CbCR applies to multinational enterprise groups with annual consolidated revenue of at least CHF 900 million.

Unlike a Master File or Local File, CbCR is not intended to justify the pricing of specific intra-group transactions. Rather, it provides tax authorities with a high-level overview of the global allocation of revenues, profits, taxes and employees, thereby supporting transfer pricing risk assessments.

Conclusion

The absence of a statutory requirement to prepare a Master File or a Local File does not mean that no transfer pricing documentation is necessary in Switzerland. Taxpayers must remain able to demonstrate that their intra-group transactions comply with the arm's length principle and that the related expenses are deductible for tax purposes.

For straightforward situations, a benchmarking study may be sufficient. As complexity increases, however, the preparation of a TP Report, and in some cases Local File and Master File documentation, often represents the most robust approach to mitigating transfer pricing risks, both in Switzerland and internationally.