December 10 2019

Recognition of transactions with Swiss residents as controlled for transfer pricing purposes – STS clarifications

Source: IBFD Tax Research Platform News

On 18 November 2019, the State Tax Service (STS) clarified in Guidance Letter No. 806/6-99-00-05-05-01-15/IПK when transactions with Swiss residents established under certain legal forms are recognized as controlled for transfer pricing purposes.

The STS clarified that, generally, a transaction should be considered as controlled and subject to transfer pricing rules if it affects the taxation of the parties and the transaction involves non-resident entities that do not pay corporate income tax, including on income received outside the state of registration of such entity, or entities that are not tax residents of the states where they are registered as legal entities.

The list of jurisdiction-based legal forms of such non-resident legal entities was approved by the Cabinet of Ministers by Order No. 480 of 4 July 2017 (the Order). The list includes Swiss residents registered as Kollektivgesellshaft, Société en nom collectif, Sociétá in collectivo, Kommanditgesellshaft, Société en commandite, Societá in accomandita (LP), Einfache Gesellscaft, Société simple and Societá semplice.

The STS emphasized that transactions with Swiss residents registered and established under the legal forms that are not included in the list will not be recognized as controlled if the parties are not related or the transactions are not conducted through a non-resident commissionaire.

Similarly, transactions with Swiss residents will not be recognized as controlled if such entities are established under the legal forms specified in the Order and pay the corporate income tax due in the reporting year in which the relevant transactions took place, including on income received from outside Switzerland.