Global mobility trends and transfer pricing implications

Switzerland’s highly international economy and central European location make it especially exposed to the effects of global mobility. Companies based in Switzerland, belonging to multinational enterprises (MNEs), whether Swiss or international, frequently employ cross-border commuters or international talent domiciled in another jurisdiction. As work patterns shift towards remote and flexible arrangements, this mobility complicates the determination of where economic value is created.

Global mobility increases the risk of creating unintended foreign taxable presences and challenges the allocation of profits under transfer pricing rules. The movement of key personnel – especially decision-makers or highly skilled employees – can influence where functions, risks, and assets are deemed to be located. As a result, companies must carefully align their mobility policies with tax and transfer pricing frameworks to manage compliance risks and avoid disputes with tax authorities.

This article outlines how the mobility of key decision-makers within MNEs is impacting tax and transfer pricing business models. As MNEs adopt more flexible working arrangements and access global talent pools, key decision-making functions are increasingly spread across multiple jurisdictions. These developments directly impact the transfer pricing characterisation of group entities and, consequently, their entitlement to profits within the overall value chain of the MNE, while also putting pressure on the continued appropriateness of existing transfer pricing policies.

The growing demand for flexible working arrangements among senior personnel, combined with increasingly international recruitment practices due to limited human resources, has led MNEs to employ senior personnel across multiple jurisdictions. Consequently, key decision-makers are no longer restricted to a single jurisdiction, and leadership functions are becoming increasingly geographically dispersed.

The nature of mobility is also changing. Long-term expatriate assignments are being supplemented and, in some cases, replaced by shorter-term, more flexible arrangements, such as hybrid working across jurisdictions and frequent cross-border travel. Senior executives may work across multiple locations without relocating permanently, resulting in more fragmented and unpredictable decision-making patterns. At the same time, the widespread use of virtual meeting tools allows key decision-makers to collaborate and take decisions without being physically co-located.

From a tax and transfer pricing perspective, these developments challenge traditional assumptions, which are ultimately connected to the notion of a fixed place of business for the creation of a permanent establishment and the income and capital attributed to it.

Transfer pricing models have historically relied on stable organisational structures and clearly defined locations for functions and decision-making processes. As these become more fluid, it is increasingly difficult to align contractual arrangements with actual conduct. In particular, the dispersion of senior decision-makers raises questions about where key functions are performed and where control over risks is exercised. These questions are central to the allocation of profits under transfer pricing principles.

As outlined above, workforce mobility has become a defining feature of modern MNEs. What was once an exception – i.e., working across borders outside formal assignment structures – is now an everyday occurrence. Employees, particularly senior decision-makers, increasingly expect flexibility in terms of where and how they work.

In the following, workforce mobility is examined in the context of traditional transfer pricing models, with a focus on substance, value creation, and the practical steps MNEs can take to maintain robust and defensible transfer pricing positions.

From a transfer pricing perspective, this shift has significant implications. Even seemingly straightforward decisions can have far-reaching consequences. For example, a group may hire a new head of R&D for its R&D centre in Switzerland, with the expectation that the individual will relocate after an initial period of three months from their home country to Switzerland. However, the individual may ultimately decide not to relocate and instead perform their role from another jurisdiction. Such outcomes can alter where key functions are performed, where control over risks is exercised, and ultimately where value is created. As a result, workforce mobility is no longer merely an HR or operational consideration; it has become a core tax and transfer pricing issue.

Beyond other tax and social security considerations, this scenario gives rise to important transfer pricing questions:

• For instance, if the head of R&D is employed by another group entity in another jurisdiction, which is assumed to be a routine distribution entity, it is necessary to determine how to remunerate this role: should these activities be compensated through a service fee, or does the role warrant a share of the profits generated by the R&D centre?

• Additionally, shifting key decision-making functions across jurisdictions raises questions about whether there is sufficient remaining substance in Switzerland to support the existing transfer pricing model. While this may initially be the case, it becomes more difficult to sustain if the head of R&D begins to build and manage a broader team in their home jurisdiction, thereby shifting further functions and decision-making authority away from Switzerland.

MNEs are facing structural tensions. On the one hand, they must offer flexibility to attract and retain talent, such as hiring key decision-makers in jurisdictions where the necessary expertise is available. However, they must also maintain a coherent transfer pricing model that aligns profits with value creation.

This creates a paradox of mobility: the more flexible the workforce becomes in terms of both cross-border mobility and the location of key personnel, the harder it is to ensure consistency between contractual arrangements and actual conduct. Without active monitoring and management, this can gradually erode the factual and functional basis of the transfer pricing model. Where such a divergence exists, tax authorities are more likely to challenge the allocation of profits.

From a transfer pricing perspective, the location and mobility patterns of senior personnel are one of the most sensitive areas. The risk of tax and transfer pricing issues increases when strategic decisions are consistently made outside the jurisdiction of the entrepreneurial entity or when multiple senior individuals operate from a location that is not reflected in the transfer pricing model.

There is no clear threshold at which mobility becomes problematic. However, once a critical mass of decision-making activity emerges in a different jurisdiction, the existing allocation of profits may become difficult to defend. In such cases, tax authorities may question whether the entity that is contractually assuming the risks is actually exercising the necessary risk management functions.

From a transfer pricing perspective, the characterisation of entities as contract manufacturers, limited-risk distributors, or routine service providers depends on a clear delineation between routine and entrepreneurial functions. However, this distinction can become blurred when entities designed to perform only limited functions employ senior or strategically important personnel. The presence of such individuals may lead to the entity's functional profile being reassessed. Over time, this can result in a greater share of profits being attributed to the foreign entity, the determination of a foreign permanent establishment, and a transfer of functions or something of value.

The issue of workforce mobility and substance is of particular importance in the context of intangible assets. As outlined in the DEMPE framework, the economic and financial owner of intellectual property must:

• Perform the key functions related to the development, enhancement, maintenance, protection, and exploitation of intangible assets;

• Control and bear the associated risks; and

• Provide the necessary funding for these activities.

Where these conditions are met, the owner of the intellectual property is entitled to the residual profits.

In practice, these DEMPE functions are often closely linked to specific individuals. In cases where such individuals are mobile or where key decision-makers operate from a different jurisdiction, the location of value creation may shift accordingly.

This prompts significant questions regarding the prevailing intellectual property ownership structures. For instance, if key personnel involved in development or enhancement activities are located in or operate from a jurisdiction outside that of the legal intellectual property owner, it may be difficult to demonstrate that the intellectual property owner both performs and controls the relevant DEMPE functions.

The issue of mobility also raises questions about the continued use of cost-plus remuneration models. While these models remain appropriate for routine services, they become less straightforward to apply where individuals perform non-routine, high-value, or strategic functions.

In such cases, the actual nature of the activity performed takes precedence over the contractual characterisation. It should be noted that a cost-plus model may not accurately reflect the value created by individuals involved in key decision-making or strategic direction.

In more complex scenarios, alternative approaches, such as profit split methods, may need to be considered. However, these approaches introduce additional complexity and should be applied with caution.

The increasing mobility of key decision-makers is fundamentally reshaping where MNEs operate and generate value. In the current business environment, traditional tax and transfer pricing models are being replaced by more flexible and decentralised ways of working. Switzerland’s highly international economy and central European location make it especially exposed to the effects of global mobility.

Managing these challenges requires a proactive and systematic approach. MNEs should establish robust governance frameworks to monitor the substance and mobility patterns of key decision-makers. This process necessitates close collaboration between the tax, HR, and legal teams, underpinned by effective internal processes and seamless communication.

It is also vital to ensure that transfer pricing policies remain aligned with actual conduct and underlying economic substance. It is essential that functional analyses, intercompany agreements, and remuneration models are subject to regular review to ensure that they accurately reflect the business’s operational practices.

The objective is not to limit mobility and international hiring but to manage it effectively. MNEs that succeed in doing so will be better positioned to balance commercial flexibility with tax certainty in an increasingly complex environment.