Tax support for a foreign client in a tax compliance verification procedure

MDDP provided strategic tax support to a foreign client in the medical sector during a tax compliance verification conducted by the Swiss tax authority at the group’s headquarters. The project involved a thorough examination of transactions with a Polish limited liability company and the allocation of costs and revenues between a foreign branch operating in Poland.

To address the Swiss tax authority’s concerns regarding the application of non-arm’s length profitability by the headquarters for multiple entities within the group, including distribution companies across Europe, MDDP’s team conducted a series of detailed comparative analyses. The Swiss tax authority’s initial methodology was challenged, and an alternative approach was presented, one that more accurately reflected the diverse distribution models employed by the group.

MDDP’s experts developed new, comprehensive analyses, including profitability calculations, which effectively demonstrated the flaws in the Swiss tax authority’s proposed approach. They identified two key distribution models: a limited-risk model for the Polish market and a full-risk model for the markets in the Balkans. The team then performed detailed analyses for various functional profiles, selecting the most relevant comparables and leveraging appropriate databases.

The strength of MDDP’s analysis, combined with clear and well-supported justifications, led to the Swiss tax authority’s acceptance of the proposed calculations. This outcome not only minimised the client’s tax risk but also ensured the arm’s length nature of transactions between the group’s entities in Poland, thereby safeguarding the client from potential tax challenges and ensuring compliance with international tax standards.

The project was led by Magdalena Marciniak (TP), in collaboration with Julia Skóra (TP) and Adrian Mroziewski (TP, ESG).