Via this alert we would like to inform you about the recently published ‘guidelines’ from the Swiss federal tax administration on the taxation of Principal Companies, which could have a material effect on principal company structures.

Central to the Swiss principal company structure, is the international allocation of profit between the Principal Company and the foreign distribution companies, whereby a certain part of the distribution profit is regarded as not taxable in Switzerland. The new guidelines introduce new, more stringent conditions that have to be met in order to apply the Principal Companies regime. The guidelines include the following new requirements:

  • The distributors need to be exclusive and economically speaking dependent on the Swiss principal (i.e. at least 90% of the distributor’s profit relates to the Swiss principal business);
  • The distributor’s gross margin may not exceed either 3% of its revenue or its higher OPEX;
  • Key functions and risks of the trading business have to be allocated to the Swiss company. If such functions are outsourced, the principal company benefits may be reduced.

For existing principal companies, the new conditions will apply as of 2015/2016, new principal companies and pending structures will have to comply with the new rules with immediate effect.

Action required
In order to avoid jeopardizing principal company structures of the following steps must be taken:

  1. A review of the activities performed by the distributors to determine whether they comply with the exclusivity requirement.
  2. An analysis of the gross margin at the level of the distributors.
  3. A review and identification of the key functions and roles that are outsourced.


Depending on the outcome of the analysis, further action may be required, which may involve significant changes to the supply chain and IT systems.