Exclusion of Taxes in Cost Determination for the "Cost-Plus" Method

On February 23, 2024, the Federal Tax Administration (FTA) unveiled a new webpage dedicated to transfer pricing. This platform offers detailed answers to frequently asked questions (FAQs), marking a significant step forward in the transparency of administrative practices in this field. For more information on this topic, we invite you to consult our article on Swiss transfer pricing legislation.

Although the FTA appears to reiterate the principles of the OECD, it is noteworthy that for the determination of costs in the application of the Cost-Plus method, the administration specifies that taxes and other non-operational costs must be excluded from the cost base.

Will this orientation from Bern be followed by the cantons? Geneva has already adopted this position, formally informing taxpayers benefiting from "cost-plus" rulings of the change in the calculation model. Henceforth, taxes are excluded from the cost base without the need for formal amendments to the granted rulings. It should be noted that this new cost determination method is applicable immediately for the financial statements of past years that have not yet been approved and for 2024.

Transfer pricing is a complex area requiring constant adaptation to the specificities and organizational structure of each group. The calculation and determination of costs to be considered will primarily depend on the chosen method, which should be the most appropriate given the nature of the transaction, the functional profile, and the sector of activity of the company. The selected method will often lead to the selection of a net profit indicator, which will likely be impacted in its calculation by the new approach. This is particularly important for financing costs, which will be excluded from the cost base if they result from a secondary activity of the company. Conversely, if they pertain to the core business of the company, they will be included in the cost base under a cost-plus method.

We are available to provide our expertise in the assessment of financial costs and emphasize the necessity of obtaining approval for the taxable margin calculation from the competent tax authorities.