Update on Swiss Principal Structures 2014

in Tax, 18.03.2014

As stated in our blog on 4 February 2014 the cantons have received clear instructions from the Swiss Federal Tax Authorities on approaching all principal companies in their jurisdiction to discuss with them the implementation of the new guidelines regarding the application of circular letter number 8.

In the meantime, some cantons have already sent out requests to the principal companies in their jurisdiction which has to be replied to by the end of June 2014.

Meanwhile the new guidelines have already been amended by the Swiss Federal Tax Authorities with regard to the exclusivity requirement. Please find below an overview of the new guidelines with the amendment marked (bold):

  • The affiliated distributors need to be exclusive and, from an economic point of view, dependent on the principal. According to the new guidelines, a distributor is exclusive and dependent if at least 90% of its profits relates to the group’s principal business
  • If certain key functions are outsourced, the principal company’s profits may be reduced
  • The distributors’ gross margin (i.e. revenue./.costs of goods) may not exceed either 3% of its revenue or its higher OPEX (including interests and taxes). Should the compensation exceed either of these thresholds, the principal company’s profits need to be adjusted.

The Big 4 have founded an Interest Group (IG Principal) for Swiss principal companies to combine forces against the new guidelines. The objective of the IG Principal is to bundle forces by bringing together a strong group of Swiss Principal Companies supported by the relevant cantonal tax administrations with the aim to collectively negotiate with the SFTA a departure from its new and more stringent practice towards a more reasonable interpretation of circular no 8. The group is open to all principal companies affected by the SFTA’s new interpretations of the principal company taxation outlined in circular no 8. There will be a kick-off meeting (31 March 2014), regular update conference calls as well as structured discussions with the SFTA, the cantons concerned, political bodies and other relevant parties as deemed appropriate.

We encourage you to join the IG Principal. If you are interested and have not already received an invitation please contact us so that we can forward one to you.

Swiss Principal Companies (March 2014) from KPMG Switzerland

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