In its decision (2C_411/2016; 2C_412/2016; 2C_413/2016; 2C_414/2016; 2C_415/2016; 2C_416/2016; 2C_417/2016; 2C_418/2016) of 13 February 2017, the Federal Supreme Court, in its ruling scheduled for official publication (2C_411/2016; 2C_412/2016; 2C_413/2016; 2C_414/2016; 2C_415/2016; 2C_416/2016; 2C_417/2016; 2C_418/2016), upholds the appeals of the Federal Tax Administration (FTA) and reverses the rulings of the Federal Administrative Court of 19 April 2016. In contrast to the Federal Administrative Court, the Federal Supreme Court concluded that information on the tax regime, tax factors, tax rates applied in Switzerland and the amount of tax as well as the income statements is likely to be substantial and must therefore be transmitted to France under the administrative assistance procedure in order to be able to determine the distribution of profits between affiliated companies in the event of a change in transfer pricing policy.

On 18 December 2013, the Direction Générale des Finances Publiques de France (DGFP), acting under Article 28 of the Agreement between Switzerland and France for the Avoidance of Double Taxation in the Area of Taxes on Income and on Capital and for the Prevention of Fiscal Fraud and Tax Evasion (DTA CH-FR), approached the Federal Tax Administration (FTA) to obtain information on the companies concerned, A. GmbH, B. GmbH, C. GmbH and D. GmbH. GmbH, which are held by a joint holding company, information regarding, among other things, their balance sheets, income statements, tax rates and amount of company taxes for the 2010 and 2011 tax periods.

According to DGFP's presentation, the activities of the holding company were reorganised in 2009. The French branch of the Swiss company C. GmbH then buys raw materials from third companies and packaging for the French factories and then resells them to the Swiss company D. GmbH. The Swiss company A. GmbH brokers the raw materials from third party suppliers. The French branch of the Swiss company B. GmbH insured the support and marketing services for the company D. GmbH and for the French companies of the holding. The DGFP further states that the change in transfer pricing policy has led to a change in the allocation of profits within the group. Under French law, transactions between companies in the same group must be carried out under the same conditions as if they had been carried out between independent companies. In the case of cross-border transactions of companies in the same group, it is also necessary to obtain information on these companies and the distribution of profits. This information is indispensable for DGFP to be able to determine the arm's length nature of transactions between related companies and thus to determine the amount of profits generated by activities in France (on the basis of which the taxes due in France can be determined).  

In its final ruling of 15 October 2014, the FTA concluded that administrative assistance was to be provided. The complaints lodged against it by the companies A. GmbH, B. GmBH, C. GmbH and D. GmbH was partially upheld by the Federal Administrative Court in its decision of 19 April 2017.

The FTA lodged an appeal with the Federal Supreme Court, claiming that the Federal Administrative Court had stated, without further explanation, that the disputed information could not fulfil the purpose of the DGFP's request. However, various documents had been submitted which fulfilled the link between the information requested and the tax matter claimed (review of profit distribution due to internal group changes in transfer pricing policy on the occasion of the restructuring in 2009) (E. 2.2). The companies A. GmbH, B. GmbH, C. GmbH and D. GmbH argue that the requested information is not likely to be relevant, but rather the collection of general information about the companies. Transfer pricing documentation has also been made available. Accordingly, a transfer of the information would violate both the principles of administrative assistance in tax matters and the principle of protection of privacy under Article 13 BV and Article 8 ECHR and the principle of proportionality under Article 5(2) BV (E. 2.3).    

The Federal Supreme Court, in its examination of the admissibility of the case, states that it has not yet had the opportunity to clarify the concept of probable materiality in the area of group law, which is why a legal question of fundamental importance exists (E. 1.4).

The Federal Supreme Court recites its case law regarding the requirement of probable materiality (3.3.1) and states that the requirement is met if, at the time of the application, there is a reasonable possibility that the requested information will prove to be material, which is why the probable materiality is not a very high hurdle for a request for administrative assistance (E. 3.3.2).

A request for assistance may also be made by a Contracting State to request information from third parties on contractual relations with a particular person. Thus, information that is necessary to verify the transfer price agreed between group companies, or the service relationships agreed between independent third parties (3.3.3), may be essential. The transfer pricing guidelines drawn up by the OECD, which serve as interpretation aids (E. 4.1), also lead to this conclusion.

The Federal Supreme Court agrees with the FTA that information on the profits of the individual group companies may prove relevant in order to verify shifts in profits within the group, which in turn may affect the group's transfer pricing policy. This does not mean that it is unlikely that there is a link between this information and the tax matter claimed. On the contrary, this information is likely to be relevant for the audit of transfer prices. Accordingly, the balance sheets, but also the information concerning the permanent establishments and their profit distribution, must be submitted to the DGFP as explained by the previous instance (E. 4.2), and all the more so for the profit and loss account (E. 4.3).    

The Federal Supreme Court concludes that, in addition to the balance sheets and permanent establishment profit distributions, the probable relevance of the information on the tax regime, the tax factors, the tax rates applied in Switzerland and the amount of tax and the income statements is also present and therefore cannot be upheld in the comments of the lower court (E. 4.4 and 4.6).

Ultimately, the Federal Supreme Court affirmed the question of whether the companies were materially affected (E. 5 ff.) and largely upheld the FTA's appeals (E. 7).