Transfer Pricing & Intercompany Transactions

What Is Transfer Pricing?

Transfer pricing refers to the prices set for transactions between related entities within a corporate group (e.g. between a parent company and its Swiss subsidiary). Tax authorities scrutinize these prices to ensure companies are not artificially shifting profits to low-tax jurisdictions.

The Arm's Length Principle

The cornerstone of transfer pricing is the "arm's length principle" — intercompany transactions must be priced as they would be between unrelated parties in a competitive market. Switzerland follows OECD guidelines in this area.

Common Intercompany Transactions

• Management fees — charged by a parent for management services
• IP royalties — charged for use of patents, software, brands
• Intercompany loans — must carry market interest rates
• Service fees — for legal, accounting, HR, IT services
• Distribution margins — for buying/reselling products within the group

Documentation Requirements

Swiss law does not mandate formal transfer pricing documentation for SMEs, but maintaining records is strongly recommended:

• Written intercompany agreements for each transaction type
• Economic analysis justifying pricing (benchmarking studies)
• Minutes of board meetings approving intercompany arrangements

IP Box Regime (Patent Box)

Switzerland introduced an IP box regime effective 2020. Qualifying net income from IP (patents, software, etc.) benefits from a 90% notional deduction, effectively reducing the tax rate on IP income to approximately 1.2% in Zug.

• Qualifying IP: patents registered in Switzerland or internationally
• The IP must be self-developed (not acquired)
• R&D activities must be conducted in Switzerland