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Switzerland: Transfer pricing considerations for multinational companies, responding to coronavirus

Switzerland: Transfer pricing considerations

The coronavirus (COVID-19) pandemic can affect supply chains and companies. Companies may still be in crisis mode as they prioritize business continuity and employee protection, while also managing supply shortages and client demand.


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While the focus now is on minimizing the negative implications, companies will have to deal with the tax and transfer pricing consequences of the COVID-19 crisis once things get back to normal. Companies, therefore, may want to consider those implications early to avoid further issues in the aftermath of the crisis and be better prepared going forward.

Swiss multinational companies need to consider the following three aspects.

Profitability of foreign affiliates

Many Swiss multinationals operate a principal structure-like transfer pricing operating model with a Swiss entrepreneurial entity and low-risk distributors and contract manufacturers worldwide. Those routine entities are expected to earn a small but stable profit margin—e.g., often an EBIT (earnings before interest and tax) margin between 2% and 4% for low-risk distributors or net profit mark-ups for contract manufacturers. However, this margin is commonly expected to be earned under normal business circumstances.

During the coronavirus crisis, companies are far removed from normal business circumstances that could justify lower than usual profit margins or even a loss. Whether foreign tax authorities will fully agree to such argumentation immediately cannot be guaranteed, but discussions along this line were already successful during the financial crisis a decade ago. Thus, it can be important that taxpayers quantify and document the extraordinary business impact of the COVID-19 crisis as support for argumentation for the tax authorities—for instance, deviations between initial budgets and actual figures per legal entity.

Intercompany financing

As a result of the COVID-19 crisis, subsidiaries may be in need of funds to pay salaries and ongoing expenses. Some may face difficulties in serving their obligations to pay interest on intercompany loans. In that situation, delaying interest payments temporarily may be one option to strengthen the financial situation of a subsidiary. Any such measures need to be well documented for the Swiss tax authorities.

If short-term funding needs are managed via a cash-pool structure, the pricing of the funds may be subject to stricter scrutiny by the tax authorities. In particular, if certain group companies have contributed cash (before the crisis) to the cash pool that proves to be of more benefit during the crisis, tax authorities may assert a higher remuneration for having provided such excess cash, as benefits are to be shared among cash pool participants.

In general, companies may need to reconsider their intercompany financing and cash pool structures in light of the new OECD Guidance on Financial Transactions—but more importantly, an efficient cash management would improve the position of a company during the next crisis.

Operational transfer pricing

Above all, the COVID-19 crisis has highlighted the importance that business processes are clearly defined and can be managed remotely in a—suddenly—virtual organization when employees have to work from home or the workforce is limited. From a transfer pricing perspective, this means that intercompany prices and profitability of group companies are monitored and managed actively. This includes visibility through customized transfer pricing dashboards with automated data updates and allocation of tasks, responsibilities, and deputy roles.

In normal times, operational transfer pricing with appropriate processes is a “must” for efficient day-to-day execution of transfer pricing policies and to fulfill increasing control requirements adequately. In times of crisis, a well-defined operational transfer pricing setup can help companies manage the crisis successfully, support business continuation, and be prepared going forward.

Read a March 2020 report prepared by the KPMG member firm in Switzerland

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