Switzerland: Revised guidance on the taxation of Swiss principal companies

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Switzerland: Revised guidance on the taxation of Swiss principal companies

hess.jpg

stutzmann.jpg

Jackie Hess


Daniel Stutzmann

The taxation of Swiss principal companies is based on Circular Letter no. 8, which was published by the Swiss Federal Tax Administration (SFTA) on December 18 2001. Provided the requirements set out in the Circular Letter are met, the Swiss principal can for direct federal tax purposes allocate a fixed percentage of trading profits abroad (an international tax allocation), which renders those profits exempt from the Swiss tax base. The SFTA has recently provided the cantonal tax authorities with revised guidance including detailed calculation guidelines on how this Circular Letter should be applied.

The new guidelines are expected to become effective for companies with existing principal company rulings in most cantons as per tax year 2016 (although some cantons have yet to confirm from the effective date). For new principal company rulings the new guidelines have already to be complied with today. The new guidelines that have to be considered in connection with the principal company allocation for direct federal tax are the following:

  • 3% gross profit margin for commissionaires/LRDs: The trading profit that benefits from the international tax allocation is newly linked to the margin/commission generated at the level of the commissionaire/LRD. As a result, a maximum allocation of 50% of the trading profit abroad is permitted only where the margin/commission at the level of the commissionaire/LRD does not exceed 3% of the gross revenue (or, if higher, the costs of the commissionaire/LRD: the respective costs are comprised of the operational cost and taxes according to the local financial statements of all qualifying commissionaires/LRDs). If the effective remuneration of the commissionaires/LRDs exceeds the allowed remuneration (3% or higher cost) this has to be taken into account for the international tax allocation. The tax allocation will be corrected in the extent of 50% of the exceeding remuneration of the commissionaires/LRDs.

  • Exclusivity of commissionaires/LRDs: An international tax allocation may be claimed only if the distributing company makes sales exclusively for the principal or other principals of the group, that is where the distributing company is entirely dependent on the principal. A dependent relationship will be presumed where at least 90% of the distributor's profit derives from trade with goods of the principal or other principals of the group. The 90% criterion has generally to be met on a long term basis and is assessed on an entity-by-entity basis.

  • Outsourcing of principal operating functions: The outsourcing of principal operating functions to foreign group companies does generally lead to a complete denial of the principal company allocation for direct federal tax. The principal allocation may however still be granted if only individual principal functions are outsourced. In such case however the principal company allocation to abroad will be reduced by 50% of the profit generated by the foreign companies on the outsourced principal functions.

  • Effect of mutual agreement procedure (MAP)/advance pricing agreement (APA): A MAP or an APA no longer will result in an automatic denial of the international allocation to the relevant country (which previously was the case); instead, there only will be an adjustment of the allocation quota.

Groups with existing Swiss principal structures should carefully review these structures and prepare for discussions with the tax authorities regarding the implementation of the new guidelines.

Jackie Hess (jahess@deloitte.ch)

Tel: +41 (0)58 279 6312

Daniel Stutzmann (dastutzmann@deloitte.com )

Tel: +1 (212) 492 4083

Jacques Kistler (jkistler@deloitte.ch)

Tel: +41 58 279 8164

Deloitte

more across site & shared bottom lb ros

More from across our site

Wim Wuyts, who had been head of the specialist tax network since 2017, is moving on to a new role with WTS’s Belgian member firm
MNEs are increasingly using algorithmic tools in TP. Sahasranshu Dash argues that data ethics should therefore plug directly into the TP design process
The Institute of Chartered Accountants in England and Wales also queried whether HMRC resources could be better spent scrutinising larger entities
Grant Thornton’s Austria tax head likens his practice to an escape room, shares his football coaching ambitions, and explains why tax is cool
Awards
ITR is delighted to reveal all the shortlisted nominees for the 2025 EMEA Tax Awards
Awards
ITR is delighted to reveal all the shortlisted nominees for the 2025 Asia-Pacific Tax Awards
The fates of pillars one and two hang in the balance after the US successfully threw its weight around in G7 and Canadian negotiations
Rafael Tena tells ITR about the ‘crazy’ Mexican market, ditching the hourly rate, and refusing to grow his fledgling firm in an ‘unstructured way’
It should be easy for advisers to be transparent about costs, Brown Rudnick partner Matthew Sharp said in response to exclusive ITR in-house data
The sprawling legislation phases out Joe Biden-era green tax incentives for businesses; in other news, the UK will reportedly maintain its DST despite US pressure
Gift this article