Switzerland consults on spontaneous exchange of tax ruling – Is the ordinance compatible with the current legal framework? - Tax and Legal blog

spontaneous exchange of tax rulings
On 20 April 2016, the Swiss Federal Council unveiled their plan to amend its current Tax Administrative Assistance Ordinance (“TAAO”) with regard to spontaneous exchange of tax ruling information. Their plan only governs situations related to tax rulings. It remains silent about other potential situations.

To recap TAAO defines what an advance tax ruling is, the categories of rulings concerned, the jurisdictions receiving the information and the format of exchange along with, and procedural and deadline requirements.

Definition of a tax ruling

For the first time there is now a legal definition of what a tax ruling is, albeit only governed in an ordinance. Pursuant to TAAO, rulings are any advice, information or undertaking provided by a tax authority and shall be deemed to exist if:

  • A specific query is confirmed in response to a ruling requested by the taxpayer;
  • The fact pattern covered influences the tax situation of the taxpayer; and
  • Upon which a taxpayer is entitled to rely on.

Verbal confirmations or even rulings referring to post-transactions satisfying above conditions will fall under the ambit of the spontaneous mechanism. The same holds true for confirmed rulings in practice never been implemented by taxpayers. Agreements reached as a result of a tax audit are however excluded by TAAO as long as they relate to past tax periods subject to audit.

Categories of tax rulings concerned

Generally speaking, the ordinance adopted the OECD framework under BEPS Action 5 and thus focuses on 5 ruling categories relating to:

  • Preferential regimes;
  • Unilateral APAs or transfer pricing;
  • Downward adjustments of taxable profits;  
  • Permanent establishments; and
  • Conduit structures.

It can be observed that TAAO is inspired by OECD BEPS Action 5 rather than on Art. 7(1) of the mutual assistance convention (MAC), which basically represent the legal basis for TAAO. This is of particular importance given that the MAC imposes higher hurdles to trigger the exchange. The applicability of Art. 7(1) namely requires for example the existence of grounds for supposing a loss of tax or a tax saving resulting from artificial transfer of profits. Accordingly, it has to be seen whether TAAO’s compatibility with the MAC will be critized during the consultation process given that the current wording of TAAO comes very close to automatic exchange of information.

Jurisdictions receiving the information

Jurisdictions being entitled to receive the ruling information will not receive the actual ruling request, but instead receive information via the format of the OECD-Template (Annex C of BEPS Action 5).

Besides the State of ultimate parent and immediate parent company, the States of all related parties with which the taxpayer enters into a transaction (or receives income subject to preferential treatment) are basically entitled to receive the ruling information. No exchange shall however take place with States not meeting the reciprocity respectively confidentiality threshold, not having signed the MAC or not being committed to the OECD approach.

So far, 44 foreign States – primarily being OECD and G20 members – are entitled to get tax ruling information. In cases where the costs of exchanging (respectively administrative burden) would be disproportionate to the potential tax income derived, allows Switzerland to escape from the commitment to exchange.

Timeframe and deadline requirements

The consultation process will run until 10 August 2016 with TAAO likely becoming effective as of 1 January 2017. This would enable the first exchange of tax ruling information as per 1 January 2018. Rulings granted before 1 January 2010 are not captured by the ordinance.

Given the short timeframe available, multinationals are advised to evaluate rulings from a risk perspective and if necessary take appropriate actions such as adjusting, replacing or even withdrawing them in a timely manner.

Join our events to learn more about the exchange of ruling

We will host two Transfer Pricing Breakfasts in Zurich on 19 May 2016, and in Geneva on 31 May 2016 (08.00am - 10.30am). As part of these events, our speakers will discuss the Swiss approach with regards to exchange of rulings, and the new transfer pricing documentation requirements – best practices “from the field”.

 For more information and to register, please follow this link.

Raoul Stocker_BLOG

Raoul Stocker - Partner, Overall Lead Business Model Optimization and Transfer Pricing

Raoul Stocker is a tax partner with more than 15 years’ experience specifically in international tax litigation such as mutual agreement procedures and advanced pricing agreements. His focus lies on corporate tax planning, cross-border structuring of corporate transactions and businesses, transfer pricing as well as taxation of financial institutions. Raoul is also a lecturer of transfer pricing and tax law at the University of St. Gallen.



Andreas Fross - Director, International Tax

Andreas is a director with more than 10 years of experience in advising clients on their Swiss or cross-border projects such as setting-up of tax-efficient structures (e.g. principal, headquarter, intellectual property and financing structures) along with corresponding repatriation planning to optimise the client’s overall tax situation. He is also a frequent author of national as well international academic tax articles and books.



Cédric Bär - Consultant, Corporate Tax

Cédric is working within the Corporate Tax team of Deloitte in Switzerland. He has been involved in several corporate tax and compliance projects for Swiss based and other multinational clients.



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